Saturday, March 17, 2007

A Winning Trade - Lehman Brothers Holdings Inc (LEH)

Dear fellow options traders :


There were a few Investment Brokerage firms reporting earnings this week. These include Lehman Brothers Holdings Inc (LEH), Goldman Sachs Group Inc. (GS) & Bear Stearns Companies Inc (BSC). I've checked that the sub-prime mortgage jitteries were not over and some of the companies mentioned above had certain exposure to such risks, though the exposure were limited. On 16 Feb 2007, Banc of America's analysis reported an equity impact of roughly 9% on average for Bear Stearns (BSC) and Lehman Brothers (LEH), and 3% for the others.

Goldman Sachs Group Inc. (GS) would be reporting earnings on 13 March 2007 before market opened and Lehman Brothers (LEH) would be reporting subsequently on 14 March 2007. I had a feeling that if GS's stock price fell on 13 March 2007 because of bad earnings related to the sub-prime mortgage problems, LEH's price might also drop and I might not be able to fetch a good price for March 70 Put on 13 March 2007. Thus I bought a Lehman Brothers (LEH) March 70 Put for $30.00 on 12 March 2007 when the stock price was hovering around $75.00.

But Goldman Sachs Group Inc. (GS) reported good earnings on 13 March 2007 and gapped about +$2.00 to $204.96 when market opened. By 11.00am EST, GS reached +$4.30 to $206.92. However, another bad news broke out again from the sub-prime mortgage sector, this time it was from Accredited Home Lenders (LEND); and that sent the stock market spiraling down after mid-day. GS and LEH were both naturally hit, as GS closed down to $199.03 and LEH dropped to $72.00 on 13 March 2007.

On 14 March 2007 before market opened, Lehman Brothers (LEH) reported 1st quarter earnings of $1.96 per share, $0.01 better than the Reuters Estimates consensus of $1.95; revenues rose 11.3% year/year to $5.05 bln vs the $4.94 bln consensus. LEH initially gapped down -$1.00 to $71.00 when market opened. I monitored the Level 2 code, price & volume chart of LEH very intently when it opened for trading and realised that the stock price was slipping gradually minute after minute. I held my position until 10.04pm EST when LEH dropped to about $68.80 and I sold my put contract for $185.00, gaining a profit of $155.00.


If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

I'm still working towards achieving profitable trades consistently.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

6 comments:

Military Money said...

Hi,

I saw your blog link on one of my Mylot responses. I wanted to know if we could exchange links. I created a blog to help military members with their finances and I think your blog would be a great resource. Thanks.

http://moneyformilitary.blogspot.com
Brandon

Tony Chai said...

Hi Brandon :

Your link is set up.

Keep up the good work

Tony Chai
http://www.myoptionsonline.com

Anonymous said...

What is gapping analysis? Can u kindly explain this concept? I am interested to know more.

Tony Chai said...

Hi :

My trading involves mainly gapping analysis related to earnings announcement.

You could study my trades in the blog to have an idea of my trading methodology.

I've learned the above technique from the Live Freely Seminar.

Yours Truly,

Tony Chai

Anonymous said...

Hi
Your blog is quite nice and informative.
As far as stock market is concerned. Trading in market requires
both time and Knowledge. Without these two factors its impossible to trade .
If you get recommendations from some specialist then also you must keep in mind its your money you
should invest it wisely. Its always advisable to get recommendations from analyst but again before investing you should do your research also.
Indian stock market is very high already now wait for dips before going long in Nifty or in some script.
If you have any Query please feel free to contact us.
Regards
Sharetipsinfo team

Anonymous said...

Hi
Your blog is quite nice and informative.
As far as stock market is concerned. Trading in market requires
both time and Knowledge. Without these two factors its impossible to trade .
If you get recommendations from some specialist then also you must keep in mind its your money you
should invest it wisely. Its always advisable to get recommendations from analyst but again before investing you should do your research also.
Indian stock market is very high already now wait for dips before going long in Nifty or in some script.
If you have any Query please feel free to contact us.

Regards n love
Sharetipsinfo team