Disney stock headlines another busy week of earnings reports as the stock market grows more optimistic about a soft landing for the U.S. economy. Other strong price performers with earnings coming up include Celsius (CELH), Aspen Technology (AZPN), Grocery Outlet (GO) and Shockwave Medical (SWAV).
After a July 5 breakout over a 72.11 entry, fast-growing Celsius rode its 10-day moving average higher. Shares gapped up Monday after the company announced a long-term distribution agreement with PepsiCo (PEP). PepsiCo also invested $550 million in Celsius. In 2020, PepsiCo paid just under $4 billion to buy energy drink firm Rockstar Energy.
Celsius is too far extended to consider buying now. But as the stock approaches its all-time high of 110.22, it wouldn’t be surprising to see Celsius start to drift lower or trade sideways for a period of time. Price action like this often presents another entry. Results are due Tuesday after the close.
Disney Stock Holds Gains
Walt Disney (DIS) is holding gains well after rallying above the 100 level. Disney stock still has a weak Relative Strength Rating, but after pulling back more than 50% off its high, a lot of bad news may already be priced into Disney stock ahead of Wednesday’s earnings report.
In May, Disney reported another quarter of strong earnings and sales growth. Adjusted profit rose 37% from the year-ago quarter to $1.08 a share. Revenue increased 23% to $19.2 billion.
The number of Disney+ streaming subscribers grew to 137.7 million, a little better than expected, while revenue at Disney’s Parks, Experiences and Products segment more than doubled to $6.7 billion. The strong growth came despite Covid shutdowns at Shanghai Disneyland and Hong Kong Disneyland.
For the current quarter, the Zacks consensus estimate is for adjusted profit of 94 cents a share, up 17.5%, with revenue up 26% to $21.37 billion. Full-year earnings estimates are strong, with fiscal 2022 profit expected to jump 70%, and 37% in 2023.
Watch These Fast Growers
Results from Shockwave Medical are due Monday after the close, along with enterprise software firm Aspen Technology.
Shockwave has been trending above its 21-day line after crossing a 194.31 handle buy point on June 24. A sharp pullback for SWAV shook out enough sellers to reset the base count. But the stock has run up sharply in recent weeks and could use a rest. Shockwave also has a 223.25 buy point, according to IBD 50 Stocks To Watch.
Shockwave is expected to delivery its first annual profit this year. Next year, annual earnings are expected to jump 47%, helped by continued strong demand for its products to treat cardiovascular disease, calcified plaque and peripheral artery disease.
Aspen Technology has emerged as a rare bright spot in the enterprise software group. The industry group has started to rally after pulling back 61% off its recent high, although the group is filled with beaten-down merchandise.
AZPN stock hit an all-time high Thursday when it cleared a cup base with 210.70 entry. But just like Shockwave and Celsius, Aspen could use a breather to digest recent gains.
Discount retailers, including Grocery Outlet, continue to perform relatively well. The discount grocery chain is getting support at its 10-week moving average with results due Tuesday after the close.
Dutch Bros (BROS) reports late Wednesday. Revenue growth has ranged from 50% to 56% in the past four quarters. It’s trying to clear a bottoming base, but BROS stock is still below the 200-day line.
Super Micro Computer (SMCI) has been in rally mode ahead of its earnings report late Tuesday. Shares gapped up in June after the computer infrastructure products company reported preliminary fiscal Q4 earnings and revenue that were well ahead of prior guidance.
Options Trading Strategy
A basic options trading strategy around earnings using call options allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works.
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First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might already have broken out and are getting support at their 10-week lines for the first time. Some might be trading tightly near highs and refusing to give up much ground. Disney stock is still far off highs, but it’s holding gains well. Avoid extended stocks that are too far past proper entry points.
In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price. You earn profits when the stock falls below the strike price with a put option.
Check Strike Prices
Once you’ve identified some bullish earnings setups for a call option, check strike prices with your online trading platform or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask. Look for a strike price just above the underlying stock price (out of the money) and check the premium. The premium ideally should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most that can be lost is the amount paid for the contract.
Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price.
Disney Stock Option Trade
Here’s how a call option trade recently looked for Disney stock.
When shares traded around 108.25, a slightly out-of-the-money weekly call option with a 109 strike price (Aug. 26 expiration) came with a premium of around $4, or nearly 3.7% of the underlying stock price at the time. That’s below the 4% threshold, and there’s a good amount of time for the option to work.
One contract gave the holder the right to buy 100 shares of Disney stock at 109 per share. The most that could be lost was $400 — the amount paid for the 100-share contract.
When taking the premium paid into account, Disney would have to rally past 113 for the trade to start making money (109 strike price plus $4 premium).
An option trade for Dutch Bros was more pricey. When BROS traded around 42.10, an out-of-the-money weekly call option with a 43 strike price (Aug. 19 expiration) offered a premium of $3, or 7% of the stock price at the time.
When Grocery Outlet traded around 44.30, an out-of-the-money monthly call option with a 45 strike price (Aug. 19 expiration) came with a premium of around $2, or 4.5% of the stock price at the time.
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight
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