When Guidance Guides the Stock Lower
The company I’m referring to is Adobe Inc. (ADBE). This is a big company with products that are used, at least in part, by nearly everyone – from individuals to major corporations.
Adobe makes and offers products and services that enable processing, sharing, and publishing documents, images, videos, and other items, offering storage and access via cloud-based services.
It has been a big beneficiary of virus-fueled remote work – but its revenue growth, after peaking at the start of this year, has been trailing lower quarter after quarter.
And for its just-filed quarterly report, Adobe’s revenue growth fell even more.
But what really did ADBE stock in was the company’s guidance for next year, stating it wouldn’t meet or exceed revenue estimates for 2022.
Adobe intraday price last week – Source: Bloomberg
The stock was already trading lower into the quarterly report, and the sell-off didn’t wanna stop.
And in turn, I got quickly involved to find the right bearish trade for Adobe for my Operation Surge Strike subscribers on Friday.
For an option trade, the obvious bearish bet might be just buying a put option. (In fact, I closed a winning put position in my Rocket Wealth Initiative late last week.)
But with volatility up for the general market, options on tech stocks – and for Adobe, in particular – were pretty expensive, as volatility is one of the major drivers for option pricing.
Instead of buying more puts, I worked up a less expensive trade: a Bear Call Spread on Adobe.
This strategy entails selling to open a call to bet on a chart ceiling for the underlying shares, and simultaneously lowering the cost of entry – and maximum risk – by buying a higher-strike call in the same options series.
The result of the pair is a net credit, which represents the maximum reward on the trade, should the underlying shares stay beneath both call strikes through expiration.
ADBE Stock – Source: TomsOptionTools.com
The lesson to learn is that in the options market, there is always more than one way to trade your outlook for a stock.
If option prices are running hotter than usual – and on the Expensive IV list from the Morning Report tool, say – you could always consider a credit spread over buying directional options outright.
So, kids, that’s your Power Profit Trades lesson for today! Be sure to tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here! I won’t be there, but Joe – an options expert from my team – will be doling out the lessons you don’t wanna miss.
And then make sure to save the date for tomorrow night’s Mistletoe Mania event – it all starts at 7 p.m. ET on Tuesday, Dec. 21!
Have a great week!
America’s #1 Pattern Trader