EOT Trade Alert – August 11, 2015
Trade Alert:
Buy NTAP September 18th 2015 $30.00 puts at $1.15 or better
Company Background:
NetApp (NTAP) is an information technology company. They make software, systems, and services to manage and store their customers’ data.
Short-Term Catalyst:
NetApp has been in a downward spiral this year. The stock is down 23% year-to-date.
The stock price is a reflection of their quarterly earnings per share that slipped 30% from 59 cents per share Q4 2013 to 43 cents per share Q4 2014. Their 65 cents per share of non-GAAP EPS also came up well short of the 72 cents they were expected to make.
What’s more, their guidance for Q1 revenue and earnings were below expectations.
Not surprisingly, the poor performance last quarter forced management to cut more than 500 jobs and acknowledge they needed to make drastic changes in order to return to growth.
Data storage is a highly competitive industry. Right now NTAP is losing the battle to larger companies like EMC Corp $EMC. They’re also seeing upstart data storage companies like Nimble Storage $NMBL.
Here’s the thing…
NTAP hasn’t done enough to stem the tide of bearish momentum. They haven’t made the next technological leap that will allow them to take back market share they’ve lost to EMC.
What’s more, the overall corporate investment in data storage hasn’t been as robust this year as some analysts expected.
NTAP will report quarterly earnings on August 19th. This earnings announcement is a train wreck waiting to happen.
A look at the recent price action shows that the downtrend that started at the end of 2014 is the dominant trend. The selloff has slowed over the last few months. This is likely due to the increased dividend and stock repurchase that have temporarily put a floor under the share price.
Last quarter the poor earnings report triggered a 12% drop in the share price. I believe the Q1 earnings will be the catalyst for the next leg down. Let’s grab put options on NTAP now to profit from the coming selloff.
Trade Details:
| Underlying Stock Symbol: | NTAP |
| Current Bid-Ask Price: | $1.00 – $1.09 |
| Option “Buy Up To” Price: | $1.15 |
| Break-Even On Stock At Expiration: | $28.85 |
| Maximum Risk Per Contract: | $115 |
Exit Strategy:
NTAP is trading at $30.78 per share. Resistance levels will be at $32.50 and again at $35.00. Remember, we want this stock to move lower. Support levels will be at $27.50 and $26.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
