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Consider Buying the Post-Earnings Dip in Adobe Systems (ADBE)
Consider Buying the Post-Earnings Dip in Adobe Systems (ADBE)
Adobe’s stock price has seen a steady rise over the last few years, and from both a technical and fundamental standpoint, there is a strong case to be made that it will continue. These following two articles discuss the recent earnings report and where the stock may go from here - Adobe: Stock Marches Forward With Another Record Quarter and Should You Buy Adobe Systems at Its All-Time High?. As well, there have been several price target upgrades as of late and a few of the more bullish analysts think the stock can even cross above the $300 price point.
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Technicals
ADBE corrected lower in the past week and is seen trading near a significant confluence of support. The 50-day moving average is coming into play, a horizontal level at $256 that was respected as both support and resistance last month, and two rising trend channels. The small channel formation originates from a low posted in late July while the longer term trend channel has encompassed price action for a few days short of a year.
*source Tradingview.com
If you agree there's further upside ahead for ADBE, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.
Buy To Open ADBE 26OCT18 255 Puts (ADBE181026P255)
Sell To Open ADBE 26OCT18 260 Puts (ADBE181026P260) for a credit of $1.97 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when ADBE was trading near $261. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will be $2.50 per spread. Each contract would then yield $194.50 and your broker would charge a $500 maintenance fee, making your investment $305.50 ($500 – $194.50). If ADBE closes at any price above $260 on October 26, both options would expire worthless, and your return on the spread would be 64% (730% annualized).
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Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run. Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around - thinkorswim. If you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80). You get $300.65 worth of services without paying us one penny.
I look forward to having you on board, and to prospering with you.
Terry
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