DailyPlay – Opening Trade (ADBE) – September 11, 2024

ADBE Bullish Opening Trade Signal

Investment Rationale

We’ve taken a bullish stance on ADBE for the past 2 quarters and with earnings later today, we are taking another stab at a bullish position going into earnings. As investors become more sensitive to the size of CapEx spending by tech firms to chase AI dominance, Adobe (ADBE) stands out as it already generates revenue from their AI models. Having shown strong performance over the past two quarters, particularly with its integration of AI-powered tools for content creators. With earnings on deck after the close today, this continued demand for Adobe’s AI tools positions the company for further growth, especially as digital content creation becomes prominent across industries. 

Technical Analysis

ADBE is trading just above its $570 support/resistance zone. ADBE has tested this level multiple times over the past year, and a break above this resistance could signal a potential rally towards the $640 price target — which represents a historical high. If earnings surprise to the upside, we expect the stock to break out above $570 and continue its upward trend.

ADBE – Daily

Fundamental Analysis

ADBE remains a highly profitable company with an industry leading net margin of 25%. While its forward P/E ratio of 28 is elevated compared to industry peers, the company’s growth projections help justify the premium valuation. With expected EPS growth of 14%and revenue growth of 11%, Adobe maintain its leadership in the software industry. This is further supported by strong profitability metrics, such as a gross margin of 88%, that continue to outshine industry averages.

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 1 ADBE Oct 25th $570/$530 Put Vertical Spread $14.63 Credit per Contract.

Total Risk: This trade has a max risk of $2,537 (1 Contract x $2,537) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $2,537 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bullish trade on a stock that is expected to break out to the upside.

1M/6M Trends: Bullish/Bullish

Relative Strength: 5/10

OptionsPlay Score: 91

Stop Loss: @ $29.26 Debit (100% loss to the value of premium)

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 Tuesday’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