Adobe Systems Incorporated: 2 Trades to Profit on an ADBE Earnings Rally

Advertisement

Adobe Systems Incorporated (ADBE) is set to release its first-quarter earnings report after the close Thursday. Wall Street is looking for solid year-over-year growth from the company.

Adobe Stock: 2 Ways to Profit on an ADBE Earnings RallyAdobe’s stock price has made an impressive comeback from its February lows, but shares are still down 9% from their December all-time high, meaning there is still some upside if Adobe can extend its winning streak in the earnings confessional.

Diving into the numbers, analysts are looking for a profit of 61 cents per share from Adobe — a 38% increase over the same quarter last year.

Revenue should climb roughly 20% to $1.34 billion. Expectations may be set a bit higher, as Adobe’s whisper number of 63 cents per share is a full two cents higher than the consensus. Hitting the whisper number should have bullish implications for Adobe stock.

Taking a closer look at the brokerage bunch, we find that analysts are quite bullish on Adobe stock. Thomson/First Call data reveals that 19 of the 25 analysts following ADBE stock rate it a buy or better, compared to six holds and no sells. Furthermore, the 12-month price target of $102.70 represents a healthy premium of 18.3% to Tuesday’s close, leaving room for potential price-target increases.

Turning to the options pits, speculative traders are also bullish on Adobe stock. Currently, the March/April put-call open interest ratio rests at 0.75, with calls outnumbering puts among options set to expire within the next two months. Zeroing in on front-month March options, this ratio slips to 0.69, hinting at bullish expectations for Thursday’s quarterly report.

Adobe stock
Click to Enlarge 
Overall, March implieds are pricing in a potential post earnings move of about 4.35% for Adobe stock.

This places the upper bound near $90, while the lower bound lies at $82.50. The $90 strike is a natural resistance level for ADBE, and could create some trouble for the shares.

That said, a break above this strike would be a big win for bulls.

2 Trades for ADBE Stock

Call Spread: After taking a breather for the past week, Adobe stock appears ready to extend its rebound off its Feb. lows. If Adobe can continue its earnings winning streak, ADBE stock should be poised to challenge $90 in short order. As such, those traders looking to side with the bulls might want to consider an April $87.50/$90 bull call spread.

At last check, this spread was offered at $1.08, or $108 per pair of contracts. Breakeven rests at $88.58, while a maximum profit of $1.42, or $142 per pair of contracts, is possible if Adobe stock closes at or above $90 when April options expire.

Put Sell: Alternately, if you’re not sold on ADBE stock’s upside potential, an April $75 put sell has a high probability of finishing out of the money. At last check, this option was bid at 58 cents, or $58 per contract. As usual with a put sell, you keep the premium as long as Adobe stock closes above $75 when April options expire. On the downside, if ADBE trades below $75 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $75 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/adobe-stock-price-adbe-options/.

©2024 InvestorPlace Media, LLC