Shares of NetApp Inc. (NASDAQ:NTAP) are flying high this morning on the heels of better-than-expected earnings. The California-based data storage company smashed analyst estimates by a wide margin. Earnings came in hot at 46 cents per share compared to an expected 18 cents per share. The denizens of the street are rewarding NTAP stock holders with 14% gains in early morning trading.
The earnings beat justifies NetApp’s recent resurrection. Since its late-May low near $23, NTAP stock is up 26%. And that’s before taking into account this morning’s monster gains. While the stock has had numerous failed bounce attempts in the past two years, this one could go the distance.
The broader market is the healthiest it’s looked in years, particularly the tech-heavy Nasdaq which boasts the strongest correlation with NTAP. Additionally, the technicals of NetApp’s stock chart look the best since 2014. Its ongoing price rise has been sufficient to hurdle all major moving averages.
Given the duration and magnitude of the recovery, the 20-day and 50-day moving averages are now rising, showing a solid reversal in NetApp’s short-term and intermediate-term trends.
Perhaps the sole feather in the bears’ cap today is NTAP’s overbought status. With the stock’s sudden addition of 14%, its rise has officially reached the meteoric stage.
Should spectators simply jump aboard despite the stock’s extended status, or wait for a bout of profit-taking during the coming days to provide a lower-risk entry?
Time will tell, but one thing worth keeping in mind is the tendency for stocks to continue running in the direction of their earnings gap over ensuing weeks. This dynamic has been on full display in tech stocks this earnings season.
The NTAP Stock Trade
With earnings in the rear-view mirror, NTAP stock options have officially become dirt-cheap. Traders looking for a lower-cost avenue for upside exposure could purchase call options. The Oct $32 call option should do the trick. It can be purchased for around $1.85.
The risk is limited to the initial debit, while the reward is unlimited.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
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