Saturday, March 10, 2007

A Winning Trade - Blue Coat Systems Inc. (BCSI)

Dear fellow options traders :

Blue Coat Systems Inc. (BCSI) has been beaten down quite badly in the year 2006, from the peak of $45.00 on 3 Jan 2006 to as low as $13.00 in mid Aug 2006. By the way, BCSI Blue Coat Systems Inc. provides proxy appliances that visibility and control of Web communications.

On 6 Feb 2006, BCSI gapped down -$13.00 to $27.79 due to guidance warning. On 15 Feb 2006, BCSI gapped down another -$5.00 to $19.69 when it announced earnings with downside guidance. On 25 May 2006, BCSI gapped down another -$3.50 to $16.00 when it announced that its 4th quarter earnings missed by $0.02 and also issued downside 1st quarter guidance - These were the series of events in 2006 which led to BCSI's stock price decline.

But BCSI started to pick up momentum from mid August 2006 onwards, rising from the low of $13.00 to about $26.00 by end Jan 2007. Things turned a bit more optimistic when BCSI announced on 8 Feb 2007 that it expected 3rd quarter revenue to be in the range of $45.5-$47.5, mln up from $40-$45 mln announced earlier. On 9 Feb 2007, BCSI reacted positively by rising about +$2.60 intra-day to close at $30.82. Even during the stock market crunch on 27 Feb 2007 when the Dow Jones Industrial Average gave up 400 points, BCSI only dipped to about $32.00 and stayed at this support price level till 8 March 2007, which was the eve of BCSI earnings announcement.

On 6 March 2007, I bought a OTM (out-the-money) March 35 Call for $55.00 per contract when BCSI was hovering around $31.80. The reason why I was confident to buy a call contract was also because I've checked from that there were some insider purchasing by 10% Owners sometime around mid Feb 2007. When a company's officials start buying their own company's shares, it's usually (but not absolutely) a sign that they are confident of the company's share performance in the next few months.

BCSI didn't disappoint. On 8 March 2007 after market close, the company reported that 3rd quarter (ended in Jan) revenues rose 32.6% year/year to $47.1 mln vs $45.9 mln Reuters consensus. In addition, BCSI guided 4th quarter revenues to be $51-54 mln vs $47.0 mln Reuters consensus. However, the company did not report EPS due to continued options review.

On 9 March 2007 (Friday), BCSI gapped up +$3.00 to open at $35.00. I monitored the Level 2 Code closely and sold my March 35 Call for $155.00 when the stock price was $35.95 at 10.08 am EST.

Related Trade in my Stock Options Trading Blog

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I'm still working towards achieving profitable trades consistently.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai