ADT (ADT, $49.66, up $0.92) is one of our favorite long-term plays right now and is a stock we are considering adding to our Weekly Wrap as a covered call trade. Shares were at $47 back in late January and while we have been calling for a move past $50, the stock has teased us for 6 weeks as it has stayed in a mini-trading range since.
We went long two call option trades for the Daily and were able to make 75% on the February 49 calls two days later on their earnings announcement but we have struggled to get back to even on our March 50 calls (ADT130316C00050000, $0.20, up $0.15) even though they are up a sizzling 300% today. Our breakeven point is $50.65 so we are rooting for a blast past $50 by Friday’s close.
The ADT April 50 calls (ADT130420C00050000, $0.95, up $0.35) are up nearly 60% and would double on a move up to $52. While we are tempted to make this an official trade, we are still looking for the March 50’s to zoom to a buck or more on a run past $50. The problem is the March options will expire in 2 days, or a little over 48 hours.
It would be sweet to see the options move from $0.05 to $1.00 by Friday’s close and one of the reasons why we remind ourselves to trust our chart work. However, with directional option trades, you have to be right by a certain time frame or the trade could go against you.
It’s almost like watching a roulette wheel where the ball is bouncing around and we have a few chips on 50. Will it hit, or bounce out? We will know by Friday but there is a good chance the 50 strike will come into play.
As far as the market, we were expecting a good retail sales number but most on Wall Street weren’t. We also said we are expecting the rally to continue this week and into next but trading has been choppy. While it may be tempting to look at some downside plays, we have learned over the years not to short a dull market. Having protection is okay but we aren’t in the camp where we want to open our next “batch” of trades with a ton of put options. At some point this year, there could be that opportunity but for now, we still believe the bulls have more room to run.
The market has turned positive as we head to press and we still have the second half to go. The Dow is up a 12-pack to 14,462 while the S&P 500 is higher by 2 points to 1,554. The Nasdaq is also up a deuce to 3,244.
We have a NEW TRADE today so let’s go check the tape.