Trade Alert: Two New Buys

I have two new trades for you today, so let’s jump right in.

Yesterday after the closing bell, Mattel (Nasdaq: MAT), the largest U.S. toy maker, posted earnings that fell well short of analyst estimates.

The company noted it was hurt by increased competition along with weak demand in North America during its holiday sales. This led to a drop of 8.3% in net revenue and a 20% drop in net income. All told, Mattel missed analyst estimates on earnings by a whopping 26%, and the shares are getting hammered — they’re down 13% ahead of the open this morning.

Based on our historical research, we know this type of earnings quarter typically drags the stock lower in the three weeks that follow, seeing declines anywhere between a minor 1% and a more impressive 6%. This scenario came up six times, and there was only one time it didn’t work out as expected, so that’s an 83% win rate — pretty good odds.

We’re looking to benefit today by grabbing the weekly (note: not the usual monthly) February 24, 2017 $27 put option. We are using the weeklies because it allows us to hold for that three-week time period, without paying for a full extra month of time premium by going out to the monthly March expirations.

Here’s your action to take. Just make sure to pay attention to the expiration you select. It should be February 24.

Here’s your first action to take:

Action to Take
Buy Action to Take
Stock: Mattel Inc. (MAT)
Option Type: Put Option
Expiration: Feb-24-2017
Strike Price: $27
Option Symbol: MAT170224P00027000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $1.45
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 $1.45.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Mattel Inc. (MAT)
Option Type: Put Option
Expiration: Feb-24-2017
Strike Price: $27
Option Symbol: MAT170224P00027000
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.

Today’s Second Trade: WDC

Western Digital Corporation (Nasdaq: WDC) also reported earnings yesterday that topped analyst estimates by 8.5%, and the stock jumped 4.9% before the market opened. Based on our research, this is a great opportunity to buy calls and hold them for about a month.

In our research, these parameters were hit five times, with gains between 7% and 12% in four of those five. One ended up being a loss, but even that saw a quick 3.5% jump in the week after earnings.

That could’ve handed us the quick 50% return we target in order to sell half.

To capitalize on this opportunity, we are going into the weekly (note: not the usual monthly) March 3, 2017 $79 call option. We are using the weeklies because it allows us to hold for that one-month time period, without paying for a full extra month of time premium by going out to the monthly March expirations.

Here’s your action to take. Just make sure to pay attention to the expiration you select. It should be March 3.

Action to Take
Buy Action to Take
Stock: Western Digital Corporation (WDC)
Option Type: Call Option
Expiration: Mar-03-2017
Strike Price: $79
Option Symbol: WDC170303C00079000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $3.70
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 $3.70.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Western Digital Corporation (WDC)
Option Type: Call Option
Expiration: Mar-03-2017
Strike Price: $79
Option Symbol: WDC170303C00079000
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.

Portfolio Update

Finally, I have a quick update on Netflix (Nasdaq: NFLX).

Last week, we grabbed the February $140 call options on the stock after a solid earnings performance, and all of your orders should have been filled by now.

We are officially tracking this position with an entry price of $5.15. The stock has given back some of those gains since then, so we are down about 21% at the moment.

But we still have three weeks until it is set to expire, so there is plenty of time for the drift to kick in and hand us a nice gain.

Remember to email me with any concerns or comments about these new trades.

You can always reach me at earningsdrift@banyanhill.com — even if it’s just to let me know how your positions are doing.

Until next time, good trading…

Jeff Opdyke
Editor, Earnings Drift Alert