As investors become more sensitive to the scale of capital spending by technology companies in pursuit of artificial intelligence dominance, Adobe (ADBE) stands out as a company that is already generating revenue from image-generating AI models. With earnings due to be released after the close on Thursday, continued demand for Adobe’s AI tools will position the company for further growth, especially as digital content creation becomes more important across various industries. The company’s innovation pipeline has the potential for long-term growth, and the earnings event could act as a catalyst for further upside. ADBE is trading just above the $570 support/resistance zone. ADBE has tested this level multiple times over the past year, and a breakout above this resistance could suggest a potential rally toward a $640 price target that could be an all-time high. If earnings surprise on the upside, the stock is expected to rise above $570 and continue its upward trend. ADBE remains a highly profitable company with an industry-leading net profit margin of 25%. While the company’s forward P/E ratio of 28 is high relative to its peers, the company’s growth projections help justify the premium valuation. With expected EPS growth of 14% and revenue growth of 11%, Adobe maintains its leadership in the software industry. This is further supported by strong profitability metrics such as 88% gross margins that continue to outperform the industry average. To capitalize on the potential for earnings-driven upside, we recommend using a “broken wing butterfly” with a high reward-to-risk ratio. Specifically, we recommend purchasing ADBE Sep 20, 2024 $585/630/650 call butterfly at $10.96 debit. This strategy includes: • Buying a Sept. 20 $585 call option for $18.80 • Selling a Sept. 20 $630 call option (2 contracts) for $5.53 • Buying a Sept. 20 $650 call option for $3.22 This butterfly strategy limits risk to $1,096 per contract while earning a maximum reward of $3,404 per contract. With a break-even point of $595.96, this structure allows you to profit if Adobe recovers towards $630 after earnings. Disclosure: (ADBE Position) All opinions expressed by CNBC Pro contributors are solely the opinions of the contributor and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliates, and may have been previously distributed by the contributor on television, radio, the Internet or other mediums. The above content is subject to our Terms of Use and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The content above may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for full disclaimer.
‘Butterfly’ options spread trades could profit if Adobe sees earnings-driven rally
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