The recent earthquake striking tech stocks has left all sorts of destruction in its wake. The who’s who of big-cap players have been left shell-shocked. But not all have suffered defeat. Some, like Adobe Systems Incorporated (NASDAQ:ADBE) have survived the selling sortie with uptrends intact. In fact, ADBE stock is still perched above its rising 20-day moving average.
What a champ!
Stocks holding up the best when a correction comes to town are often those that lead once the bears have finally been rounded up. And that has me looking at Adobe Systems with interest. Of course, relative strength isn’t anything new. ADBE stock has been riding a rocket ship to the moon. Thus far, the computer software company is up 38% for 2017.
It’s on its way to scoring quite the banner year.
For much of its rise, pullbacks have been a luxury denied to spectators. If you’ve wanted into ADBE stock, then you’ve had to pay up — which is what makes its current dip such a treat. The past four days have carried ADBE back to its 20-day moving average, which has provided support multiple times over the year.
What’s particularly impressive is the volume, or I should say lack of volume during this retreat.
Though the rest of tech has been burning down amid fiery flames of distribution, ADBE hasn’t experienced any high-volume down days over the past three weeks. That suggests there is no urgency to jump ship by shareholders and stands in stark contrast to the rest of the sector.
The ADBE Stock Trade
So what’s the play? With implied volatility levels still somewhat elevated, even though Adobe just reported earnings, I’m looking at bull put spreads here. Sell the Aug $130/$125 bull put for 50 cents. The position consists of selling to open the Aug $130 put while buying to open the Aug $125 put. Consider it a bet that ADBE will sit above $130 at Aug expiration. If it does, you will capture the max profit of 50 cents.
The max loss is $4.50, but you will lose far less if you simply exit when/if ADBE falls to the short strike ($130).
At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.
