The iShares Transportation Average ETF (IYT) is a price-weighted ETF dominated by rail, trucking and freight companies. The top 10 holdings comprise 77% of the ETF, with nearly half of that coming from four railroad names – Kansas City Southern, Norfolk Southern, Union Pacific and CSX. Other familiar names in the top 10 include FedEx and UPS.

The transportation sector has been hot since the March 2020 bottom, as shown by IYT’s gain of more than 130%. The ETF hit a record high a month ago but has retreated 4% in the past month with rising fuel prices (crude oil hit a two-year high this week) taking a bite out of profits. The overall uptrend is intact, however, guided by IYT’s 50-day moving average. The trendline’s steady increase has hardly changed during IYT’s recent sideways price action. More importantly, IYT has not closed a single day below the 50-day since February 3. But now the trendline is being tested, as IYT sits just one percent above this support.

We’re banking on this support holding and for the long rally to continue. Our credit spread’s short strike is below the 50-day, so a hold at this trendline would keep our spread out of the money.

If you agree that IYT will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above 265 through expiration in six weeks.

Buy to Open IYT 16Jul 260 put (IYT210716P260)
Sell to Open IYT 16Jul 265 put (IYT210716P265) for a credit of $1.45 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when IYT was trading above $270. Unless the ETF rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $143.70. This trade reduces your buying power by $500 and makes your net investment $356.3 ($500 – $143.70).  If IYT closes above $265 on July 16, both options will expire worthless and your return on the spread would be 40% ($143.70 / $356.30).

Pandemic? What pandemic? FL, the ultimate in a brick-and-mortar, mall-based store, has been a monster performer this year. The stock is up a gawdy 50% and has more than doubled since last August. The company reported stellar earnings on Friday before the bell that easily topped expectations. Earnings came in at $1.93 per share compared to the $1.12 consensus analyst estimate. Sales hit $2.15 billion, which made the $1.9 billion estimate look silly. Of course, sales were higher than a year ago during the pandemic. What’s impressive is that FL topped its 2019 Q1 performance as well.

Prior to earnings, the stock dropped nearly 13% in three days after hitting a two-year high on Tuesday. But FL rebounded on Friday, gaining 2%. More importantly, the shares found solid support at their 50-day moving average. This trendline has been instrumental in supporting FL’s nine-month rally. In fact, the stock has closed below the 50-day just twice since late August. Currently, the 50-day sits at 59, while the stock is just below 61. At the current rate of incline, the 50-day should be around 60, which is where we’re playing an aggressive credit spread.

If you agree that FL will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above $60 through expiration in eight weeks.

Buy to Open FL 16Jul 57.5 Put (FL210716P57.5)
Sell to Open FL 16Jul 60 Put (FL210716P60) for a credit of $1.00 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when FL was trading just below $61. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $98.70. This trade reduces your buying power by $250 and makes your net investment $151.30 ($250 – $98.70).  If FL closes above $60 on July 16, both options will expire worthless and your return on the spread would be 65% ($98.70 / $151.30).

On Tuesday after the bell, EA stepped into the earnings confessional. Results on the top and bottom lines lagged analyst expectations, but bookings came in higher than company estimates. Moreover, EA upped its guidance for FY 2022, as user base growth achieved during the pandemic is expected to remain intact. The Street appeared confused by the report, as the news was greeted by a mix of modest target price increases and decreases. However, the important number is the average $163 target, which is 17% above Friday’s closing price. 

Though the Street appeared mostly relieved that EA’s post-lockdown slump was less than feared, the stock fell for three straight days. But the fall covered a modest 2%, as daily lows were well supported by the 50-day moving average. This trendline, which is turning higher for the first time in two months, sits above the $137 level. Meanwhile, the 200-day moving average is in place above $135. With this solid downside support in play, we are looking at a credit spread with the short strike below the 200-day at the 135 strike.

If you agree that EA will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above $135 through expiration in five weeks.

Buy to Open EA 18Jun21 130 Put (EA210618P130)
Sell to Open EA 18Jun21 135 Put (EA210618P135) for a credit of $1.20 (selling a vertical)

This credit is $0.06 less than the mid-point of the option spread when EA was trading at $138.62. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $118.70. This trade reduces your buying power by $500 and makes your net investment $381.30 ($500 – $118.70).  If EA closes above $135 on June 18, both options will expire worthless and your return on the spread would be 31% ($118.70 / $381.30).

On Wednesday, PYPL blew past earnings estimates, as profits jumped 84% from a year earlier. The EPS of $1.22 easily beat the consensus analyst estimate of $1.02. Revenue was up 29%, also beating expectations. For good measure, the company upped its guidance for 2021. The news was greeted by several target price updates. The average price target is now above $317, which is 25% above Friday’s close.

Although the stock is up about 2% since earnings, it hasn’t blown anyone’s hair back so far in 2021, as the shares are up only 8%. In fact, they’ve been flat for 3-1/2 months. But a longer-term view shows the stock’s monster uptrend since the March 2020 bottom – it’s more than tripled – is alive and well. The rising 20-week moving average has guided the rally nearly perfectly, allowing just three weekly closes below it during the past year. This trendline is sitting near 255, so we’re looking at a put credit spread with the short put sitting below the 20-week.

If you agree that PYPL will stay above its 20-week moving average, consider the following trade that relies on the stock remaining above $250 through expiration in six weeks.

Buy to Open PYPL 18Jun21 240 Put (PYPL210618P240)
Sell to Open PYPL 18Jun21 250 Put (PYPL210618P250) for a credit of $3.60 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when PYPL was trading at $253. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $358.70. This trade reduces your buying power by $1,000 and makes your net investment $641.30 ($1000 – $358.70).  If PYPL closes above $250 on June 18, both options will expire worthless and your return on the spread would be 56% ($358.70 / $641.30).

On Thursday, CAT did something it’s done for the past three quarters – it easily topped earnings estimates. The company reported $2.87 in adjusted earnings versus the projected $1.95. Sales ($11.9 billion) also soared past estimates ($10.5 billion). The numbers were well received by Wall Street, as a couple of brokerages raised their target prices. But analysts overall are less than enthusiastic toward the stock, with more than half rating the shares a hold or sell. That seems at odds with the stock’s performance, however. CAT has more than doubled off a low from last May and is up 25% for the year. The stock should benefit as more analysts come to their senses and jump on CAT’s bandwagon with upgrades.  

Despite the impressive performance and target price increases, CAT is down 2% since earnings. But this is a good thing. Why? For the fourth straight quarter, CAT declined after blowout earnings. But in each of the previous three quarters, the decline was perfectly supported by the rising 50-day moving average. In fact, the stock has closed below this trendline just two times going all the way back to mid-May of last year. The 50-day is currently sitting just above the $226 level. Given the previous post-earnings pullbacks to this support, we’re looking at a credit spread with the short strike below the 50-day.

If you agree that CAT will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above $225 through expiration in five weeks.

Buy to Open CAT 4Jun21 222.5 Put (Cat210604P222.5)
Sell to Open CAT 4Jun21 225 Put (Cat210604P225) for a credit of $0.85 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when CAT was trading at $228. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $83.70. This trade reduces your buying power by $250 and makes your net investment $166.30 ($250 – $83.70).  If CAT closes above $225 on June 4, both options will expire worthless and your return on the spread would be 50% ($83.70 / $166.30).

DHR – a medical diagnostics and research company – reported earnings Thursday morning that blew away estimates. Adjusted earnings came in at $2.52 per share compared with 81 cents a year earlier and the analyst estimate of $1.76. Revenue soared 58% from a year earlier, easily surpassing expectations. The company was bolstered by strength in its core business and by products related to Covid-19 vaccinations, therapeutics and diagnostics. Analysts were clearly impressed, as the company received a slew of target price increases ranging from $270 to $315 (the stock closed Friday at $260).

The earnings news caused DHR to pop more than 6% in two days to hit record highs both days. More importantly, however, this strength propelled the shares above stubborn resistance at the $248 level. This area defined tops in November, January, February and in the week before earnings. With clear sailing ahead and strong fundamentals at its back, DHR should stay above the trading range that dominated its price action for the past six months.

If you agree that DHR is ready for a new uptrend, consider the following trade that relies on the stock remaining above $250 through expiration in eight weeks.

Buy to Open DHR 18Jun21 240 Put (DHR210618P240)
Sell to Open DHR 18Jun21 250 Put (DHR210618P250) for a credit of $2.00 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when DHR was trading at $260. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $198.70. This trade reduces your buying power by $1,000 and makes your net investment $801.30 ($1000 – $198.70).  If DHR closes above $250 on June 18, both options will expire worthless and your return on the spread would be 25% ($198.70 / $801.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Few industries were hit as hard during the pandemic as cruise lines. But, after bottoming out more than a year ago, CCL has more than tripled in value.  And although its latest earnings report showed the company absorbing a loss, booking volumes were 90% higher than the previous quarter. That, along with accelerating vaccinations and anticipation of strong demand this summer, brought a slew of analyst target price increases.

The shares have pulled back from their 2021 high following earnings, unable to break through triple-top resistance in the 30-31 area. The retreat has nearly reached the ascending 50-day moving average, which sits at the 27 level. The 50-day provided support to previous pullbacks in February and March. With the fundamentals turning favorable, look for support to hold to keep the uptrend intact.

If you agree that CCL will continue its uptrend, consider the following trade that relies on the stock remaining above $26 through expiration in six weeks.

Buy to Open CCL 28May21 24 Put (CCL210528P24)
Sell to Open CCL 28May21 26 Put (CCL210528P26) for a credit of $0.65 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when CCL was trading at $27. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $66.70. This trade reduces your buying power by $200 and makes your net investment $133.30 ($200 – $66.70).  If CCL closes above $26 on May 28, both options will expire worthless and your return on the spread would be 50% ($67.70 / $133.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

After popping 7% following its last earnings report in early February, GOOGL traded sideways through the end of March. April has been another story, however, as the stock has gained 10% in just six trading days to hit an all-time high. Over the longer term, GOOGL has been a beast, having more than doubled off the March 2020 low. And why not, given its dominant position in the search and online advertising space.

The recent price action follows a pattern GOOGL has exhibited following recent earnings reports – a quick pop after earnings followed by a trading range or a slight drift higher. The company reports earnings on April 27, so a repeat of recent history bodes well for the stock’s intermediate-term outlook.

If you agree that GOOGL will continue its uptrend through earnings on April 27, consider the following trade that relies on the stock remaining above $2200 through expiration in six weeks.

Buy to Open GOOGL 21May21 2190 Put (GOOGL210521P2190)
Sell to Open GOOGL 21May21 2200 Put (GOOGL210521P2200) for a credit of $3.50 (selling a vertical)

This credit is $0.10 less than the mid-point of the option spread when GOOGL was trading at $2270. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $348.70. This trade reduces your buying power by $1000 and makes your net investment $651.30 ($1000 – $348.70).  If GOOGL closes above $2200 on May 21, both options will expire worthless and your return on the spread would be 54% ($348.70 / $651.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

On March 23, ADBE reported earnings that easily beat estimates on both revenue and profits. Moreover, the company raised earnings and revenue guidance for the fiscal year. In response, several analysts raised their price targets. Despite the positive news, the stock price was sluggish in the two days following the report. Perhaps that was a response to the 10% rally that began two weeks before earnings.

After those two days, however, the stock resumed its winning ways, gaining ground in four of the next five days. In the process, ADBE crossed above its 50-day and 200-day moving averages. In addition, the 50-day is rolling over into an uptrend for the first time since late October. The stock is now on a 15% rally off the March 8 bottom with no areas of resistance until the 505 level, the site of highs in November, December and January. That leaves room for another 5% of upside.

If you agree that ADBE will stay above its 50-day and 200-day moving averages, consider the following trade that relies on the stock remaining above $475 through expiration in seven weeks.

Buy to Open ADBE 21May21 470 Put (ADBE210521P470)
Sell to Open ADBE 21May21 475 Put (ADBE210521P475) for a credit of $1.90 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when ADBE was trading above $483. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $188.70. This trade reduces your buying power by $500 and makes your investment $311.30 ($500 – $188.70).  If ADBE closes above $475 on May 21, both options will expire worthless and your return on the spread would be 61% ($188.70 / $311.30).

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $188.70. This trade reduces your buying power by $500 and makes your investment $311.30 ($500 – $188.70).  If DRI closes above $145 on May 21, both options will expire worthless and your return on the spread would be 61% ($188.70 / $311.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

On Thursday, DRI – whose brands include Olive Garden, Longhorn Steakhouse and The Capital Grille – reported earnings that blew out expectations on both revenue and profits. The company also announced that its dividend would more than double along with a $500 million share repurchase program. The news was warmly greeted by the Street, which showered the dine-in chain conglomerate with a slew of target price increases that ranged as high as $165 (the stock closed Friday at $149). The shares gained more than 11% in the two days following the earnings news, hitting yet another all-time high on Friday.

To say DRI is in rally mode would be a gross understatement. Since bottoming last April, the stock has rocketed 245% higher. Already this year, DRI has gained 25%. The rally has proceeded largely along DRI’s 20-day moving average, with the 50-day moving average lending support on pullbacks. With strong fundamentals in place and a recent uptick in same-store sales, there’s ample reason to believe the rally should continue as customers return to DRI’s varied dining rooms.

If you agree that DRI’s rally has legs, consider the following trade that relies on the stock remaining above $145 through expiration in eight weeks.

Buy to Open DRI 21May21 140 Put (DRI210521P140)
Sell to Open DRI 21May21 145 Put (DRI210521P145) for a credit of $1.90 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when DRI was trading just below $149. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $188.70. This trade reduces your buying power by $500 and makes your investment $311.30 ($500 – $188.70).  If DRI closes above $145 on May 21, both options will expire worthless and your return on the spread would be 61% ($188.70 / $311.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry