Taser International: Get a Stunning Value in TASR Stock

Law enforcement security and protection device manufacturer Taser International (TASR) had been on a tear this year. But now an earnings gift of sorts is allowing for a “well-supported,” corrective entry — one made more approachable with a particular strategy.

Taser International: Get a Stunning Value in TASR Stock

Last week, TASR bulls got zapped on the heels of its earnings release. The initial announcement had the bulls’ attention, as shares traded up by about 3% following a 57% year-over-year increase in the company’s bottom line, which topped forecasts by 2 cents on earnings of 11 cents. At the same time, revenues also bested Street views as sales of $46.71 million grew by 26%.

Then came the intraday conference call and bad news for bulls already in TASR.

During the session, Taser management stunned the bulls with a weak outlook for Q3. Analyst estimates calling for 12 cents per share on sales of $50.2 million now apparently look high after Taser announced it would “come in close” to Q2’s results.

By Thursday’s close, TASR stock had done a 180 and closed off by about 11%. Friday saw additional weakness, as shares finished lower by 3% and a three-month low.

But before you think the technical sting is going to turn into a bloodier situation for bulls, let’s take a look at Taser’s stock chart, which is showing ample evidence for an intermediate low.

TASR Stock Chart

Taser weekly stock chart
Click to Enlarge
Source: Charts by TradingView

First, shares of TASR have corrected by 27%. While the headlines are telling to traders to focus on reduced guidance, the magnitude of the move thus far is in keeping with regular corrective declines of 20% to 30% that occur in growth stocks as they digest rapid gains (as is the case with TASR).

Secondly, the correction in TASR stock has hit three Fibonacci support levels constructed from cycles developed over the past year as shares rallied through both 10-year and all-time highs set back in 2004. Three or more retracement levels is sometimes called a “Fibonacci cluster” and can be used as support when entering on a pullback within a trend.

While Taser’s pullback is corrective in nature due to its severity, we can see that despite a channel line now broken, the uptrend’s series of higher lows and highs is still in place. Additionally, the lows found last week have also found support off the key, longer-term 200-SMA.

Lastly and supportive of a low and pending reversal higher in TASR stock, shares have corrected out of a head-and-shoulders topping pattern. The good news here is the measured move has been completed.

By measuring the vertical distance in TASR stock from the neckline to head, a figure of $5 is calculated. If we then subtract that amount from the breaking point on the neckline near $31.50, the pattern’s downside objective would be completed at $26.50.

Because TASR dipped down to $26.25 on Friday before rebounding back through the 200-SMA to close at $27.22, we have additional technical support for potentially, a major intermediate low being in place.

TASR Stock Bullish Option Strategies

Taser volatility chart
Click to Enlarge
Source: Charts by TradingView

The muddled combination in TASR options and volatility emphasizes either a collar or bullish vertical as appropriate directional strategies to reduce unwanted or undesired risks associated with an outright purchase or sale of an option.

In reviewing the board, one bullish vertical spread that looks interesting given TASR’s option pricing and discussed technical assessment, is the Sep $27/$30 bull call spread for up to $1.15. A breakeven of $28.15 means shares of TASR have a bit, but not too much work to do, while a stronger move through $30 by expiration would produce a profit of $1.85 or return of 160%.

Should the technical low in TASR stock and what we consider to be a critical support zone, fail to hold bears at bay; a stop loss below $26 should enable this vertical spread trader to take a much smaller loss of about 40 cents rather than the max loss of $1.15. And while that would sting, the small, contained loss (when sized properly) certainly won’t be lethal.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

More From InvestorPlace

Article printed from InvestorPlace Media, https://investorplace.com/2015/08/taser-international-tasr-stock-call-spread/.

©2023 InvestorPlace Media, LLC