Trade Alert - (ADSK) March 3, 2020

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

Tech Alert - Autodesk, Inc. (ADSK) - BUY

BUY Autodesk, Inc. (ADSK) April 2020 $155-$165 in-the-money vertical BULL call spread at $8.60

Opening Trade

3-3-2020

expiration date: April 17, 2020

Portfolio weighting: 10%

Number of Contracts = 11 contracts

Autodesk was down 3% yesterday after their quarterly earnings report, the trade climbed away from me before I could issue a tech alert, but shares are down another 3% today so I am getting this tech alert off before it runs away again.

Tech stocks were down this morning but the sudden announcement of a rate cut will no doubt lift tech stocks.

Volatility has been off the charts off the past 10 trading days.

Option prices are incredibly volatile, only execute limit orders.

One of my favorite software stocks guided softly for next quarter’s revenue of $880-895M (consensus: $912.05M) and EPS of $0.80-0.86 (consensus: $0.88).

Revenue was still up 22% year-over-year and Autodesk as well as many software stocks have taken a major haircut over the past week with Autodesk down from its all-time high of $210.

Many of the great software stocks are giving weaker guidance and even though it is a laggard today, Autodesk is an impressive company with great products.

Heightened implied volatility has given option prices further cushion to strap on those deep in the money call spreads.

This trade is a trade that profits if Autodesk stays above $165 in the next 46 days which is around 11% from the current market price.

The risk/reward for this trade is favorable and much of the bad news is priced into stocks with the central bank implicitly giving their approval for further accommodative policy if need be.

Take note that the options expire in April, long-dated call spreads are a better bet in this market climate.

If you don’t do options, buy and hold the stock.

Here are the specific trades you need to execute this position:

Buy 11 April 2020 (ADSK) $155 call at………….………$32.05

Sell short 11 April 2020 (ADSK) $165 call at………….$23.45

Net Cost:……..............………………..…….………..…….....$8.60

Potential Profit: $10 - $8.60 = $1.40

(11 X 100 X $1.40) = $1,540 or 15.40% in 46 days

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Spread” by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.

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