Adobe Stock Plummets On Acquisition News; Play The Downside Using Diagonal Spreads | IBD

TL;DR

Adobe stock has experienced a crash following an acquisition, making it a potential candidate for a bearish diagonal put spread option strategy.

Transcript

[Applause] hey option traders for today's trade we are looking at an option play in software stock adobe so taking a look here on market smith the stock has had a big crash last week falling close to 17 in one day following news of their acquisition of figma for 20 billion dollars this occurred just a few days after the company found resistance at ... Read More

Key Insights

• 🥳 Adobe's stock suffered a significant decline following news of its acquisition and resistance at its 50-day moving average.
• 👥 The stock has been an underperformer with a low RS rating and weak IBD group ranking.
• ❓ Despite weak recent performance, earnings are expected to improve in 2023.
• 🫤 A bearish diagonal put spread is a potential option strategy for investors.
• 🧑‍🤝‍🧑 The strategy involves buying a put and simultaneously selling a put with different strike prices and expiration dates.
• 🪐 The width of the strike prices and the net debit paid determine the profitability of the trade.
• 🫤 A diagonal put spread on Adobe involves buying a put with a 245 strike and selling a put with a 260 strike.
• 😚 The maximum loss of the trade is the premium paid, while the maximum profit occurs if Adobe closes at 260 on October 21st.

Questions & Answers

Q: What led to the decline in Adobe's stock?

The stock fell due to news of its acquisition of Figma and facing resistance at its 50-day moving average.

Q: How does the RS rating and IBD group ranking reflect Adobe's performance?

With an RS rating of 12 and an IBD group ranking of 195 out of 197, Adobe has been an underperformer and lacks leadership in its industry.

Q: What is a diagonal put spread?

A diagonal put spread is an option strategy where an investor buys a put and sells a put simultaneously, with both options having different strike prices and expiration dates.

Q: How can an investor estimate the profit potential of a diagonal put spread?

The potential profit of the trade can be estimated by subtracting the net debit paid (the cost of the trade) from the width of the strike prices.

Summary & Key Takeaways

• Adobe's stock has seen a significant decline after its acquisition of Figma for $20 billion and resistance at its 50-day moving average.

• The stock has been an underperformer with a low RS rating and a weak IBD group ranking.

• Despite decelerating EPS and sales growth, earnings are predicted to rebound in 2023.