DailyPlay – Opening Trade (ADBE) – June 6, 2024

ADBE Bullish Opening Trade Signal

Investment Rationale

As we head into earnings for ADBE next week, we are taking a 3rd position on this stock in the last 2 months. We’re batting .500 so far and looking to improve on our win rate with an earnings play. Our investment thesis has not changed, Adobe is one of the few software plays that has an AI-related product that generates profits today. Expectations are for EPS to remain flat, but the stock is nearly 29% lower from its February peak, creating a significant upside opportunity going into an earnings catalyst. 

Technical Analysis

After declining 29% over the past 4 months, ADBE has printed a new recent low that has been coupled with positive divergence (lower low in price, but higher low in momentum). This suggests that the selling has exhausted and the opportunity is now to the upside. Additionally, ADBE generated a Counter Trend buy signal yesterday and has outperformed the market since. 

ADBE – Daily

Fundamental Analysis

ADBE trades at a very reasonable 25x forward earnings, especially when analysts expect the company to grow EPS and Revenues by 12-13% over the next few years and commands a very strong industry-leading 24% net margin. Since 2009, ADBE has only missed on earnings 3 times, so probabilities point to another beat this season.  

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 1 Contract July 19th $455/$425 Put Vertical Spread @ $11.77 Credit per Contract.

Total Risk: This trade has a max risk of $1,823 (1 Contract x $1,823) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,823 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that is expected to bounce higher off support.

1M/6M Trends: Bearish/Bearish

Relative Strength: 2/10

OptionsPlay Score: 93

Stop Loss: @ $23.54 Debit. (100% loss of premium received)

View ADBE Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View ADBE Trade