This tech stock is poised for strong gains heading into earnings. Using options to trade it

CNBC

2 days ago

With the technology sector gaining momentum again amid a broader market recovery, Adobe stands out as a high-quality growth stock poised to benefit from its leadership in digital creative design and AI-driven tools. The company's impressive financial performance, coupled with its strategic use of AI to enhance workflows, positions it as a top pick in the software sector. ADBE recently broke out from its bearish trend with strong momentum providing an optimal timing to add bullish exposure. And with a high implied volatility (IV) environment, this allows us to capture elevated premiums while positioning for upside going into earnings on June 12. Trade timing The timing for adding bullish exposure to ADBE is optimal, as the stock recently broke out above its bearish trendline with strong momentum. This breakout, combined with ADBE's outperformance of the S & P 500 suggests potential for further upside toward our $465 target. Fundamentals ADBE trades at a substantial discount to its industry on a forward PE basis while delivering superior profitability making it an attractive investment in a recovering market. Forward PE ratio: 20.02x vs. industry average 27.72x Expected EPS growth: 11.83% vs. industry average 11.48% Expected revenue growth: 9.56% vs. industry average 9.36% Net margin: 30.64% vs. industry average 9.80% Bullish thesis Leadership in digital design: Adobe's dominance in digital creative design is bolstered by its extensive software suite and high switching costs, creating a strong competitive moat. AI-driven growth: AI presents both opportunities and risks, but Adobe is leveraging AI effectively with its Firefly app, enhancing workflows and positioning the company for continued innovation. Strong financial performance: Adobe reported impressive Q1 sales growth of 10.3% to $5.7 billion, driven by subscription revenues and improved margins, highlighting its ability to execute and grow. The trade To capitalize on ADBE's potential upside, I'm selling a July 3 $415/385 put vertical @ $11.95 credit. This entails: Selling the July 3 $415 put @ $22.20 Buying the July 3 $385 put @ $10.25 The maximum reward is $1,195 if ADBE is above $415 at expiration. The maximum risk is $1,805 if ADBE is below $385 at expiration. The strategy breaks if ADBE above $403.05 at expiration. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.