Trade Alert — Two 50% Gains and Two New Buys

As Jeff mentioned last week, we’re gathering for our annual editorial retreat to mine our big ideas for the coming year.

We planned to send a short note this week since everyone is traveling, but we’ve been watching the calendar, and now is the best time to make some trades.

For one, two new buys were triggered in The Interpublic Group of Companies (NYSE: IPG) and Lowe’s Companies (NYSE: LOW).

And two of our positions — our call option in United Rentals (NYSE: URI) and our call option in Activision Blizzard (Nasdaq: ATVI) — have rallied, so we’re going to take some profits off the table.

Let’s start with that.

Shares in Activision Blizzard have steadily climbed today, and they’re now up more than 3% — triggering our orders to sell half the position at a 50% gain.

Last Thursday, we placed those orders at $2.17, a 50% gain based on our official $1.45 entry price. And at last glance, the option was at $2.45 — up nearly 70% in just one week.

If your orders to sell half have not been filled, go ahead and exit half the position at the market.

On the remaining half of the trade, let’s manage it as usual by placing a protective stop. Since we are already up more than 70%, instead of placing the usual 10% stop, let’s place it at a 40% gain.

Based on our official entry price, that will be $2.03 in the portfolio. Please place yours at whatever nets you a 40% gain based on your individual entry price.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Activision Blizzard Inc. (ATVI)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $45
Option Symbol: ATVI170421C00045000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $2.03
Trade Deadline: Keep this order open until it is filled or canceled.

Our other 50% gain today comes from United Rentals.

You may recall that we placed a stop-loss on United Rentals last Thursday to limit our loss to 50%. The company had announced a new bond offering, and shares fell on the news. In fact, our calls were underwater by about 13%.

But since then, shares have reversed — continuing on their expected earnings drift. Now our calls are up 50%.

So first, go ahead and cancel that stop-loss order. Then sell half of your position at the market right now — locking in roughly a 50% gain.

Here’s your action to take on the first half:

Action to Take
Sell HALF Action to Take
Stock: United Rentals Inc. (URI)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $125
Option Symbol: URI170616C00125000
Action: Sell to Close HALF
Order Type: Market Order
Duration: Today
Limit Price: Market
Trade Deadline: Will be filled automatically.

Now we are going to place a stop-loss order to preserve a 10% gain in the remaining position. Based on our official entry price of $10.15, we’ll place that stop at $11.15, but remember to set your stop at whatever price nets you a 10% gain based on your individual entry price.

Here’s your action to take for the remaining position.

Action to Take
Sell Action to Take
Stock: United Rentals Inc. (URI)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $125
Option Symbol: URI170616C00125000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $11.15
Trade Deadline: Keep this order open until it is filled or canceled.

These were great examples of how our drifts can kick in and swing our positions to a gain quickly. So we’d appreciate it if you could give us your feedback on how these trades went for you. What gains did you see, and did you enjoy the process?

You can email us at earningsdrift@banyanhill.com. Every bit of feedback helps.

Now let’s look at our two new trades…

Two New Buys

We’ll start with the company that reported earnings this morning, Lowe’s Companies. The home-depot chain announced earnings that were 8% higher than what analysts expected. This caused the stock to pop over 8% this morning — and that triggered a new trade for us.

These parameters have been met five times in the past decade, and each time the stock rose in the following month anywhere from a modest 1% to more than 11%.

So we will look to capitalize on this updrift by grabbing the April 21, 2017 $82.50 call option.

Here’s your action to take:

Action to Take
Buy Action to Take
Stock: Lowe’s Companies Inc. (LOW)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $82.50
Option Symbol: LOW170421C00082500
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $2.30
Trade Deadline: If your order is not filled by my next update, I will update you on the trade.
Note: Do not place a market order. Set the limit order at $2.30.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Lowe’s Companies Inc. (LOW)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $82.50
Option Symbol: LOW170421C00082500
Action: Sell to Close Half
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: Whatever nets you a 50% gain.
Trade Deadline: Keep this order open until it is filled or canceled.
Note: This second order will allow us to collect a 50% gain on half of our position in the event that a quick move happens before I can get a trade alert out to you.

Our next trade today is on The Interpublic Group of Companies.

This company reported earnings three weeks ago that surpassed analysts’ expectations by more than 10% — and the stock surged 8% on the news.

In our decade’s worth of research, this scenario — a strong earnings beat and a following pop in the stock — has occurred seven times. In all but one time, shares climbed higher. Gains were anywhere from 2.5% to more than 50% within two months.

The average gain was 10% — a return that would be magnified for us since we use options. So, to benefit from this trend, we are going with the April 21, 2017 $25 call option.

Here’s your action to take:

Action to Take
Buy Action to Take
Stock: The Interpublic Group of Companies Inc. (IPG)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $25
Option Symbol: IPG170421C00025000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $0.70
Trade Deadline: If your order is not filled by my next update, I will update you on the trade.
Note: Do not place a market order. Set the limit order at $0.70.
Once this order is filled, place the following order:
Sell Action to Take
Stock: The Interpublic Group of Companies Inc. (IPG)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $25
Option Symbol: IPG170421C00025000
Action: Sell to Close Half
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: Whatever nets you a 50% gain.
Trade Deadline: Keep this order open until it is filled or canceled.
Note: This second order will allow us to collect a 50% gain on half of our position in the event that a quick move happens before I can get a trade alert out to you.

That’s all for this week. If you have any questions about our trades, please send us a note at earningsdrift@banyanhill.com.

Have a great weekend,

Chad Shoop, CMT
Investment Analyst, Earnings Drift Alert