Thursday, August 24, 2006

A Winning Trade on PDCO


Paper traded a put option on Patterson Companies Inc. (PDCO) on 23 Aug 2006, eve of earnings announcement. On 24 Aug 2006, PDCO dropped $1.30 to $31.50 around 9.45am EST. At 10.05am EST, PDCO reached $31.50 (-$1.30). Sold my put option for a profit of about $500.

The drop was because PDCO Patterson Companies missed their 1st Quarter EPS by $0.02 though their revenue rose 10.0% y/y to $655.5 mln vs. consensus of $654.1 mln. PDCO also issued downside guidance for FY07, sees EPS of $1.54-1.57 vs. $1.58 consensus.

The above was one of the technique taught by Dr Clemen Chiang to trade equity options when I attended the Live Freely Options Trading Seminar Workshop (Singapore). I graduated from Batch 14.

I'm still working hard to maintain consistency in achieving profitable trades.

Wishing you Profitable in your Trading too.

Yours Sincerely ,
Tony Chai

Saturday, August 19, 2006

Impressive Week

The market ended the week impressively.

The NASDAQ Composite Index (ticker : $COMPQ) surged 106.24 points, or 5.16%, to end at 2,163.95.

The S&P 500 index ($SPX) added 35.56 points, or 2.81%, to close the week at 1,302.30.

Meanwhile, the Dow Jones Industrial Average ($INDU) ended the week up 293.44 points, or 2.65%, finishing at 11,381.47.

This despite that the preliminary consumer sentiment index fell to 78.7 in Aug 2006 released by the University of Michigan on 18 Aug 2006. Wall Street had expected the index to slide to 83.8. The greater-than-expected drop was viewed as a signal that the economy might weaken too much.

Options traders should monitor the market sentiment closely next week to see whether the rally would carry on.

Thursday, August 17, 2006

Market Sentiment

For the past 2 days stock market rose.

On Tuesday, the Producer Price Index (PPI) showed that prices at the wholesale level only edged up 0.1% in July 2006, well below the 0.5% jump in June.

On Wednesday, The Labour Department announced that the Consumer Price Index (CPI) rose by 0.4% in July 2006. But the industrial output in July 2006 slipped to just 4%, half the June pace, an indication that the economy is slowing.

With the data showing a decline in inflation pressures and slowing of economy (also because of the cooling housing market), investors felt that the Federal Reserve might pause further interest rates hike, which would otherwise threaten economic growth and hinder corporate profits.

The Dow Jones Industrial Average was pushed to its highest level in three months on Wednesday.

Investors who bought Abercrombie & Fitch Co. (ANF) calls would be delighted as the share gapped up $5 after earnings announcement and rose another $2 intra-day. ANF's revenue rose 15.2% yr/yr. The company also issued upside guidance for FY07. ANF average trading volume is about 2.2M shares.

Tuesday, August 15, 2006

DE - earnings

DE (Deere & Co.) announced earnings on 15 Aug 2006 before market opens. Revenue increased 5.7% to $5.68 bln year/year. Reported 3rd quarter EPS of $1.85 per share, $0.04 better than the Reuters consensus of $1.81.

When market opened on 15 Aug 2006, DE gapped down about $1 to $67.50 but went up quickly to close the gap. DE then went down to about $67 about 9.52am EST, but shot up to $69 at 10.16am EST. The stock went up to $69.83 by 10.35am EST.

If you bought a put option before earnings announcement, you might recover some of the premium if you sell between 9.40am EST and 9.50am EST. The stock has already dropped from $82 to $70 since mid July 2006. Thus, take note that buying a put for this earnings play might not see further downside.

Sunday, August 13, 2006

How will DE do?

With the economy slowing & inflation on the rise, it seemed to be a ripe time for put buyers. However, stocks like (PCLN) & Cisco System (CSCO) rallied after their earnings announcement last week. Thus, put buyers should still be prudent in their choice of options trades despite this "weak" market.

I've been looking for news of any reported cases of drought which might effect Deere & Co. (DE) agricultural equipment's business but have not found any. This share has gone down from $82 to $70 since mid July 2006. How would this stock perform after its earnings announcement on 15 June 2006? We'll see.