Let’s follow up to our “Diamond in the Rough” call on ADBE back on June 25th. After a sharp sell-off post earnings, we evaluated both the technical and fundamental drivers behind ADBE stock. As you may recall, ADBE had seen a dozen upward revisions with ZERO downward revisions just prior to earnings.
As the stock retreated almost 10% from its highs and hovered near it’s 50 day moving average, we discovered a potential “diamond in the rough.”
We purchased a “broken wing call butterfly” which is a combination of a long and a short call spread. We bought the July 27th expiration 245/252.5 call spread and sold the July 27th expiration 252.5/255 call spread to offset some of the premium risk to the signal. We paid $1.75 to do this and the maximum value of this spread is $7.50.
Our students just sold half of their position for $2.75, a profit of 57% and we have a stop exit order entered for the remainder of the signal. The stock looks might strong and we will continue to raise our stop exit level if the stock moves higher. If the stock does retreat, our risk management is firmly in place to achieve a minimum of a 55% return.