Weekly Issue: Earnings from UPS and Intel on deck
Key Points From This Issue:
- We continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a buy. Our protective stop loss for the AMAT calls remains at 0.85.
- United Parcel Service (UPS) reports this morning, we’ve previewed what’s expected and will have more after the earnings call.
The last several weeks, we’ve had a string of significant returns across call option trades in Walmart (WMT), Applied Materials (AMAT), Home Depot (HD) and others. Earlier this week, we added Corning (GLW) to that list as we closed out the Corning (GLW) November 17, 2017, $31 calls (GLW171117C00031000) at 1.21, a 92% return off of the 0.63 buy-in price. The underlying Corning shares spiked following an upbeat earnings report and outlook for the company and we prudently booked those profits.
As I pointed out yesterday in this week’s Tematica Investing issue, the market is poised to follow the tone of each day’s earnings reports. This tends to be the case in times like this when the stock market is “priced to perfection” and expectations are running high — sometimes too high. In the current environment that saw the market fall Monday and climb Tuesday only to drop yesterday, we’re inclined to sit back and be patient full well knowing the sheer volume of earnings reports to be had over the next 12 trading days.
That doesn’t mean we are sitting on our hands, as we’ll continue to look for new options trades as well as potential stock shorting candidates. For example, since we covered our General Motors (GM) short in early September the shares have climbed 22% as the company issued a favorable 3Q 2017 earnings report. But in looking at the report in detail, auto sales still fell more than 16% year over year… they just fell less than expected. Remember, we covered the GM short given the expected enthusiasm associated with the need to replace cars following the September hurricanes. As that enthusiasm fades and GM shares are now even more expensive, it’s being reported:
And that’s one example of what we’re keeping tabs on. Again, we’ll be sure to act and pull the trigger when the time is right.
UPS reports 3Q 2017 earnings today
Later this morning, United Parcel Service (UPS) will issue its 3Q 2017 earnings report, and odds are it will have an impact on our United Parcel Service (UPS) Jan 2018 130.000 calls (UPS180119C00130000) that closed last night at 0.43. Consensus expectations for UPS have it delivering (yes, pun intended) EPS of $1.45 on revenue of $15.6 billion. As we saw with our Corning calls earlier this week, an earnings beat and upbeat outlook could quickly pop our UPS calls.
- We will have more following the company’s earnings report, but should a bad report be had, we have our stop loss set at 0.30.
Hanging steady with Applied Materials
Week over the week the underlying shares for our Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) were trending higher. That is until yesterday’s pullback in the market led to a pullback in the calls. Even so, we’re still modestly profitable and odds are the capital spending update contained inside Intel’s (INTC) 3Q 2017 earnings report will remind investors of the current ramp in semiconductor capital equipment. We heard about the robust environment from AMAT competitor Lam Research (LRCX) last week and that led us to boost our AMAT price target to $65 from $60 on the Tematica Investing Select List.
Looking outside of semi-cap demand, Applied’s display business will remain busy over the next several quarters as manufacturers ramp capacity to meet rising demand, particularly for organic light- emitting diode displays.
- We continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a buy.
- Our protective stop loss for the AMAT calls remains at 0.85.
