Athenahealth, Inc (ATHN) Stock Is Flatlining. Time to Profit

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Athenahealth, Inc (NASDAQ: ATHN ) reported earnings and Wall Street hated what it saw. The company disappointed on several metrics, and ATHN stock fell more than 19% and into double-digit territory.

Fundamentally, there is not much wrong with ATHN's model, so the long-term prospects did not materially change because of this bad report. But, at over 200 times earnings, its stock is not cheap, so I can't say that it won't fall further. On the bright side, the threat of downgrades should be limited since analysts are evenly distributed in their ratings among three levels.

Today, I want to commit long by selling downside risk, but after a plunge this big, I have to evaluate its technical health. Although, on the shorter-term charts, I see the potential of support around $92.50. The monthly chart shows potentially ominous patterns forming.

If, for some reason, ATHN stock loses $90 per share, it could invite technical sellers chasing a giant inverse cup-and-handle formation all the way down to retest $70, which is a level not seen since 2013.

Click to Enlarge Missing a few estimates is one thing, but I am not sure it's worth negating athenahealth's efforts for the last four years. I can accept the Street's rejection of $140-plus per share as too high, but as long as nothing materially changed in their model, I can also make the assumption that $75 would be just as wrong. I am willing to sell risk below it to generate income with confidence.

The Bet: Sell the ATHN Dec $75/$70 credit put spread and collect $1 per contract to open. This is a bullish trade that has an 80% theoretical chance of yielding 20% on risk. I don't need athenahealth to rally … I simply need its stock to stay above my spread to retain my maximum reward.

For a more aggressive commitment with a bigger reward, I can sell naked puts … but I only do this if I am willing and able to own the shares at that price. (Note that I can start with a credit put spread then decide to sell the protection leg for a bigger potential reward.)

The Bigger Bet: Sell the ATHN Dec $65 put for $2 per contract. Both trades have similar chances of success, but this one carries a bigger risk starting at the strike sold.

Learn options as easy as 1-2-3 in a personal 1on1 webinar here . Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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