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Looking for More Income from ADBE

John Jagerson and Wade Hansen

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We have reopened our exposure to Adobe (NASDAQ:ADBE) with bullish trade.

We recommend selling put options on ADBE, but we want to avoid being too aggressive because the market’s rally doesn’t have as much momentum behind it as we’d like. The bank reports have been somewhat erratic so far, which has set some traders on edge. Selling a put builds in a small hedge in case the stock heads lower.

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We took profits on our ADBE April 18th $260 Put Write last week. ADBE had lost some momentum after its last break higher, and we were concerned the resistance level just above $275 might prevent the stock from climbing any higher in the short term. Resistance at $275 caused the stock to form a double top in September 2018, and a rejection at that level could send the stock back down.

Though it hasn’t broken above $275, the stock is headed higher, and we think now is a good time to sell more premium.

First Quarter Earnings Were Strong

We’ve talked in the past about why we like ADBE, and we’ve successfully sold three puts on it in 2019.

Though the stock lost some value after reporting earnings, the report had some positive news. The company beat earnings per share (EPS) estimates, and it increased subscription based revenue since the first quarter of 2018.

One aspect of ADBE’s business model we’ve always liked is its subscription-based services. The fact that revenue from those services is increasing only makes the stock that much more appealing.

Two “Double Bottoms”

From a technical perspective, ADBE broke out of a large double bottom in the $205-$260 range in late February and is just completing another smaller double bottom in the $255-$270 range. The stock retested its most recent breakout with a bounce last week, making this a good opportunity to sell puts.

Daily Chart of Adobe (ADBE) — Chart Source: TradingView

We are optimistic in the short term that investors have set a very low bar for earnings, which will reduce the risk for disappointments, but we want to be cautious for a few more days while we gather more data.

ADBE is a good bet because its earnings were generally positive, and investors are moving capital into stocks that provide income and/or solid growth. ADBE is still a great buy in that sense.

To find out which puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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