Earnings season is chugging along, and I’m looking for trades on companies with some enthusiasm behind them ahead of their reports. Canopy Growth Corporation (NYSE:CGC), with its massive leap higher yesterday, certainly meets that standard.
Less-than-ideal reports from both 3M (NYSE:MMM) and McDonald’s (NYSE:MCD) contributed to the market’s flat performance yesterday.
MMM’s earnings miss was slight, but at $1.78 earnings per share, it was down 19% year-over-year. The company also declined to reinstate its 2020 guidance, which doesn’t leave investors with much to base their positions on.
MCD is another giant company showing us the concrete cost of the COVID-19 pandemic. The company reported its largest earnings miss in decades, and it is planning to permanently shutter 200 more locations this year.
Even though it is expected to open 350 new locations by the end of 2020, the lack of guidance for future performance, as in the case of MMM, doesn’t leave investors with much to look forward too.
Altria Group, Inc. (NYSE:MO) on the other hand, reinstated its 2020 guidance, and because it owns a 45% stake in Cronos Group, Inc. (NASDAQ:CRON), that sent the other stocks in the cannabis segment soaring.
The Importance of Guidance
If you can recall, last earnings season, John Jagerson and Wade Hansen discussed the importance of guidance during these uncertain times.
That hasn’t changed.
The Congressional Budgetary Office (CBO) has released grim long-term projections for the next 10 years, but it believes we could see a decent recovery in the relative short term. Gross domestic product is expected to reach pre-pandemic levels by 2022, and unemployment should peak in the third quarter of 2020.
In the short term, that’s the best you can ask of a very bad situation. And knowing which companies have a plan in place to succeed — and the confidence that they will succeed — in this environment is key. Guidance is a part of that.
It seems so important to investors that they pushed the whole segment higher.
Another big development for CGC is its new website, which will sell CBD products in the U.S. This is another attempt from the company to break into the U.S. market.
This time it could succeed.
CGC Has Plenty of Support
CGC has been making higher lows ever since the crash, which you can see on the chart below by following the black line. The blue line represents up-trending support that has developed over the last month.
Daily Chart of Canopy Growth Corporation (CGC) — Chart Source: TradingView
In the chart above, you’ll also see that the stock lept higher yesterday. That was probably because of the news I just mentioned, and a pessimistic view would suggest the stock was overbought.
That’s certainly possible, but that doesn’t mean we can’t take a bullish position. With a put write, we don’t need the stock to maintain its current level, we just need it to maintain its trend and stay above support.
With that in mind, I think it’s best to set a strike price below the $15-$16 range that has served as support since June.
Sell to open the CGC Aug. 14th $14.50 put at about $0.30.
Note: Be sure you are opening the weekly CGC options that expire on Friday, Aug. 14, 2020.
This is a high-risk trade, so take a small position.
About Naked Put Writes
A naked put write is a bullish position in which you expect the price of the underlying stock to increase.
InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
