Weekly Issue: Adding a new call position, and checking on an existing one
Key Points from This Alert:
- We are adding the Trade Desk (TD) December 15, 2017, 65 calls (TTD171215C00065000) that closed last night at 3.60 to the Tematica Options+ Select List. As we do this, we are setting a protective stop loss at 2.75.
- We continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a Buy; we would be buyers up to 2.25. As we get ready for Applied’s earnings next week, we will boost the stop loss for the call position to 1.30 from 0.85.
Trade Desk (TTD) — Adding an Option Call to a New Select List Stock
Earlier this week we added a new position to the Tematica Investing Select List — Trade Desk (TTD) shares. If you missed that missive, you can find it here. As I mentioned in that note, the company is set to report its September quarter earnings after the market closes later today. While this is an options-heavy service — an approach that coincides with more of a trader mentality vs. the long-only, thematic and patient strategy I use at Tematica Investing — the positions we take tend to have strike dates that are out at least several weeks if not several months. I also look to identify key catalysts over those coming weeks.
Today, we are going to make a rare break with that time-tested strategy to add the Trade Desk (TD) December 15, 2017, 65 calls (TTD171215C00065000) that closed last night at 3.60.
Following the robust advertising heavy 3Q 2017 results from Facebook (FB), Alphabet (GOOGL) and to some extent Twitter (TWTR), as well as the continued growth in overall advertising, spend we cited in our Trade Desk (TTD) write up, we are looking to capitalize on the accelerating shift in digital advertising spend. Over the last four quarters, the worst performance had at Trade Desk was the one time it reported EPS in–line with expectations, while the other three times it crushed expectations and guided above consensus.
After having done our homework on Trade Desk, we are not surprised by this beat and raise history when it comes to earnings. As we know from our Connected Society tailwind, more consumers are opting to consume, shop, transact and communicate either online or through mobile, and advertisers are shifting their spending to go where those consumer eyeballs are. Our only regret is that we didn’t identify Trade Desk sooner, but rather than dwell on the past we are adding this TTD call option this morning to position ourselves what is likely to be a strong earnings report.
I would be remiss if we didn’t consider the possibility that Trade Desk flubs it. It can happen, and as we know options can get hard hit when a stock falls just a few percentage points. For that reason we are setting a protective stop loss at $2.75.
My expectation is this will be a quick trade that will either pay off handsomely over the next few days or one that we’ll be thankful that we set a stop loss. Based on all that I have seen and analyzed, my sense is this will be the former not the latter.
- We are adding the Trade Desk (TD) December 15, 2017, 65 calls (TTD171215C00065000) that closed last night at 3.60 to the Tematica Options+ Select List
- As we do this, we are setting a protective stop loss at 2.75.
Applied Materials – Waiting for earnings to come next week
Over the last week, our Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) have continued to move higher given favorable comments about chip demand as well as the beat and raise at Universal Display (OLED) when it reported its 3Q 2017 earnings last Thursday. Universal’s results confirm the robust outlook for Applied’s display business, and as I shared yesterday we see the ramping capacity for organic light emitting diode displays making the technology, even more, cost competitive, paving the way for new applications.
The next catalyst for the AMAT calls will be Nov. 16 after the market close when the company reports its quarterly earnings. Over the last 30 days, consensus expectations have edged higher to EPS of $0.91 for the quarter, but candidly speaking Applied is one of those company’s that beats expectations by a penny or two and tends to boost its guidance as well. The last time Applied did this, its shares jumped 2.7% the next day. Based on the commentary about the current upcycle for semi-cap demand as well as ramping display equipment needs, we would be surprised is Applied missed the market next week.
- We continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a Buy; we would be buyers up to 2.25
- As we get ready for Applied’s earnings next week, we will boost the stop loss for the call position to 1.30 from 0.85.
