NEW DIRECTIONAL CALL PLAYS

Express Scripts Holding - ESRX - close: 68.72

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ESRX is in the healthcare sector. The company provides pharmacy benefit management (PBM) services in the U.S. and Canada. Both the NASDAQ and shares of ESRX peaked in early March. It would appear that investors considered ESRX one of the higher-growth, momentum names since it has been sinking with that group over the last couple of months.

That big drop you see on ESRX's daily chart was market reaction to its latest earnings news. The results were disappointing. You could call it a trifecta of bad news. ESRX missed Wall Street's estimates on both the top and bottom line. Management guided lower for 2014. Plus they disclosed three separate subpoenas from different state authorities as the company is investigated for its relationship with drug makers.

Investors already had lowered expectations for ESRX's earnings because the company lost UnitedHealth Group (UNH) as a client last quarter. The loss of UNH accounted for about half of ESRX's lost revenues. ESRX complained that a lot of expected new enrollments had been postponed. They didn't see quite the impact from the new Obamacare exchanges previously expected.

It sounds like plenty of bad news for ESRX. Yet here's the interesting part. The stock lost -6% following its earnings report but there was no follow through lower. Investors have been buying the dip. Shares are up two weeks in a row and slowing chewing through resistance. With a drop from $79 to $65 (-17.7%) it is possible that all the bad news is already priced into ESRX stock price. The long-term trend for ESRX is still higher. As the new affordable healthcare policy changes gain momentum it should mean more enrollments for ESRX.

Currently shares of ESRX are hovering below technical resistance at the simple 200-dma. There is also likely price resistance at $70.00. Therefore We are suggesting a trigger to buy calls at $70.50. If triggered at $70.50 we will start with a stop loss at $66.90.

Trigger @ $70.50

- Suggested Positions -

Buy the Aug $75 call (ESRX140816C75) current ask $0.69
option format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 6.5 million
Listed on May 17, 2014


NEW DIRECTIONAL PUT PLAYS

Whole Foods Market, Inc. - WFM - close: 37.91

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WFM is in the services sector. The company runs a grocery chain focused on natural and organic foods. As of May 2014 they had 379 stores. Unfortunately their success in the higher-margin organic foods has fueled significant competition.

The stock has been sinking for months as investors worried about growing competition. WFM's recent earnings report confirmed their fears. The stock crashed -19% after WFM missed estimates on both the top and bottom line and confessed they were facing tougher rivals. Management then lowered their 2014 guidance.

WFM said revenues still grew +10% and their same-store comparable sales were up +4.5%. Unfortunately profits were relatively flat and margins are getting squeezed with higher cost of goods sold and rising capex.

WFM is facing competition on all sides. Sprouts Farmers Market (SFM), The Fresh Market (TFM), Kroger (KR), Wal-mart (WMT), and regional competitors like HEB and Trader Joe's are all jumping on the organic and natural food bandwagon.

We are suggesting put options at the opening bell on Monday. More conservative investors might want to wait for a decline below the May 7th intraday low of $37.31 before initiating positions. We will start this trade with a stop loss at $40.25 since the $40.00 level is clearly defined resistance. Our target is the $30-26 area.

- Suggested Positions -

Buy the Aug $35 PUT (WFM140816P35) current ask $1.05

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 9.2 million
Listed on May 17, 2014