July 26, 2023

Dear Friend,

Terry’s Tips subscribers had a huge day today, especially those who are in our Microsoft (MSFT) portfolio. MSFT dropped 3.8% today after earnings, but our portfolio gained more than 13% … in just one day. That’s the power of the 10k Strategy, a trading method developed by Dr. Terry Allen more than two decades ago.

Don’t miss out on the profits. For our loyal newsletter subscribers, I’m of course keeping the sale going that saves you more than 50% on a monthly subscription to Terry's Tips.

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I look forward to having you join in the fun and profits! Now on to the trade ...

Here's your Option Trade of the Week as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. We’re back to post-earnings trades as we’re now in the meat of earnings season. Although the trade is a few days old, the credit you can receive is greater than that available on Monday morning. That means higher profit potential for you.

Smoking Not

We’re a bit heavy on the bullish side of the ledger with our open positions. In fact, we have four open put spreads and one neutral iron condor on the books. So, with earnings season in full swing, I was on the hunt for a post-earnings bearish play. It wasn’t easy, though, as most stocks did well after reporting even though they were obscured by the blinding bearish light of NFLX and TSLA.

The pick for this week is Philip Morris International (PM), the tobacco giant that, according to its website, is “building our future on replacing cigarettes with smoke-free products …” These include heated tobacco, e-vapor and oral smokeless products. PM reported earnings on Thursday before the bell that beat estimates for profit and revenue. Smokeless product revenue increased 34% from a year ago. But the full-year earnings outlook fell short of the analyst estimate. Currency exchange rates are also expected to take an 8% to 9.5% chunk out of earnings.

Analysts were oddly silent on PM’s report. In fact, I couldn’t find a single rating mention or price target adjustment for the $150 billion market-cap company (the last one was nearly a month ago). The current view toward PM is firmly bullish, however, while the average price target is around 15% above Friday’s closing price.

With no help from analysts, we turn to the charts. In the two days after earnings, the stock drifted lower by a little more than 1%. For the past year, the shares have done little, netting a gain of less than 2%. The key to this trade is the 100 level, which put a lid on a six-week rally that covered about 13%. This level marked tops in March and April as well. Before that, it served as support from December through mid-February. Based on this history, we’re going with a call spread with the short strike at the 100 level.

If you agree that PM will continue to struggle with this resistance, consider the following credit spread trade that relies on the stock staying below $100 (blue line) through expiration in 6 weeks:

Buy to Open the PM 1 Sep 103 call (PM230901C103)
Sell to Open the PM 1 Sep 100 call (PM230901C100) for a credit of $0.65 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $97.52 close.  Unless PM falls sharply at the open on Monday, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $63.70. This trade reduces your buying power by $300, making your net investment $236.30 per spread ($300 - $63.70). If PM closes below $100 on Sep. 1, the options will expire worthless and your return on the spread would be 27% ($63.70/$236.30).  

Testimonial of the Week

I’ve been involved with investing equities, options and futures for most of my life and I’m seventy years old. You are to be congratulated on your method, expertise and diligence. I plan to add to my account and the number of portfolios. ~ Karl

Any questions?  Email Jon@terrystips.com. And remember, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off.

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Happy trading,

Jon