Thursday, November 30, 2006

A Losing Trade - CHS

Dear fellow options traders :

Sharing a paper trade on Chico's FAS (CHS) with you :-

Bought a Chico's FAS (CHS) Dec 22.5 Call at about $1.65 on 27 Nov 2006 understanding CHS would report earnings announcement on 28 Nov 2006 after-market-close (AMC).

Back in 2 Nov 2006, CHS provided downward guidance for the 3rd quarter EPS of $0.22-$0.25 and revenue of $402 mln versus the consensus of $0.26 and $420.15 mln respectively. CHS also reported that Oct comps fell 4.1% vs +1.6 consensus. CHS dropped -$2.00 on 2 Nov 2006 to $21.

But CHS climbed back to around $25 by mid Nov. I checked the Form4Oracle site and found that there were some insider buying by the management recently. According to, Barron's reported that the Chief Investment Officer at Hardesty Capital Management began buying shares of CHS back in August and September. That provided me with the confidence to buy a straight call before the earnings announcement.

On 28 Nov 2006 AMC, CHS reported 3rd quarter earnings of $0.24 per share, in line with the Reuters Estimates consensus of $0.24. Revenues rose 12.5% year/year to $404 mln vs the co's $402 mln preannouncement. CHS reported that same-store sales declined 0.4% for the retail month of Nov. CHS did not provide updated guidance for the fourth quarter or for fiscal 2007.

On 29/11/06, CHS stock price did not plunge too drastically. CHS hovered around $23.20 around 9.52am EST. By 10.06am EST, CHS reached $23.26 (+$0.14) and the Dec 22.50 Call could fetch $1.35. CHS reached $23.50 (+$0.38) by 11.04am EST. I sold my Dec 22.50 Call when it could fetch $1.30, suffering a small loss from the price I paid for the call at $1.65.

The above trade was based on gapping analysis, one of the technique taught by Dr Clemen Chiang to trade equity options when I attended the Live Freely Options Trading Seminar Workshop (Singapore).

You can take a look at my review of the Live Freely! Seminar HERE.

If you've managed to find out more about the Live Freely! Seminar from this blog and subsequently sign up for it, I hope you could do me a kind favour and mention Mr Tony Chai from Batch 14 as the referrer. Thank you for your kindness.

Currently, I'm still working hard to achieve profitable trades consistently.

Wishing you Profitable in your Trading too.

Yours Sincerely,

Tony Chai