Tucows Could Have a Lot of Pop Left Before Its Current Run Ends

When a stock moves higher on bad news, it's time to take notice. Just before Valentine's Day, Tucows (TCX) reported earnings of $0.42 per share on revenue of $85.61 million. Both of these numbers were below last year's fourth quarter report. The stock opened 5.5% lower. Fast forward two days later and it's like nothing happened. Jump to today and the stock is now up 7%. It's possible the $40 million buyback has helped encouraged buyers given the market cap of the company is only $800 million, but what's more likely is we are seeing some of the nearly 20% short interest getting squeezed. If this is the case, TCX could have a lot of pop left before the run ends.

The month long runs of both November and January were 20% moves. If that is set to repeat on the most recent breakout, then I would peg the upside target for TCX at $90 to be reached by the end of March. If the stock recedes below $72, then the bulls have completely lost momentum and the short can easily push the stock back to the 50-day simple moving average.

The biggest challenge with TCX is the stock doesn't trade a ton of volume. It means the moves will be wider as well as the option spreads. The need for limit orders is a maximum here and traders should not chase either the stock or an options trade if the bid-ask immediately moves on your limit order. This is the type of security where if you get your fill, great, but if you don't, then remember there are other opportunities. Don't skew your risk-reward against you by chasing.

The Trade:

Buy to open April $75 call at $4.40

Net Cost $440

Max Risk $440

Max Reward: Unlimited

Breakeven $79.40

Intrinsic Value $200

Days until expiration: 52

At the time of publication, Timothy Collins had no position in the securities mentioned.