Friday, July 27, 2007

A Few Winning Trades

Dear fellow stock options traders :

The 2nd Quarter Earnings Season in the US has started about 2 weeks ago.

It's a busy week as I honed my trading skills further using the earning gapping analysis technique.

The few companies that I've used this technique to trade options when they were reporting earnings were :-
1) Pharmaceutical Product Development Inc. (ticker : PPDI)
2) Columbia Sportswear Company (ticker : COLM)
3) CROCS Inc. (ticker : CROX)
4) Apple Inc. (ticker : AAPL)

Reasons for entering above trades

Pharmaceutical Product Development (PPDI)
On 13 Jul 2007, Jefferies downgraded Pharmaceutical Product Development (PPDI 39.82) to Hold from Buy, noting PPDI's development revenue growth is decelerating. Thus, put options were intiated.

Columbia Sportswear Company (COLM)
On 25 Jul 207, Caris reported COLM had experienced several years of significant operating margin declines. Trading at 17x forward ests valuation, COLM appeared steep for current growth rates and expectations. Thus, put options were initiated.

CROCS had a spectacular quarter when they reported Q1 earnings back in 3 May 2007. Boosted by the announcement of the 2-for-1 stock split, CROX gapped up almost $12.00 on 4 May 2007. I expect the momentum to carry on for the Q2 earnings thus I bought call contracts for their earning announcement this round.

Apple Inc. (AAPL)
Been following Apple's development for the past few months and understood from a news in back in 25 June 2007 that the Mac notebooks secured 14.3% of all notebook sales in the U.S. versus 12.5% in April, 2007 (almost two full percentage points in mid-spring). Apple didn't disappoint when they announced their Q3 earnings on 26 July 2007. Mac shipments were 1.76 mln vs the 1.7 mln street expectation. Gross margin was outstanding at 36.9% vs roughly 32.7% street expectation. Call options for Apple were very expensive due to the built up of high volatility leading to earnings announcement. However, the +$7.00 gap up after earnings announcement and ample time value helped maintain some profit for the near the strike call options.

Important : The above option positions were NOT initiated based on single news brief. I've been following these counters for some time and have kept abreast of their development. You need to dedicate time, research and accumulate a certain level of experience in order to pick out some of the stocks which could make a substantial price movement after earnings announcement, from amongst the hundreds of stocks reporting earnings every week. It takes much hard work to achieve this but the rewards are certainly worth the efforts.

As I was writing this entry, the US market was rather shaky. It has already shed more than 300 points on Thursday (26 July, 2007), mainly due to the cloud of uncertainty around pending LBOs (Leveraged Buyouts). The delayed deals for DCX, Alliance Boots in Europe, CSG and WCI - which have surfaced recently, signaled the tightening of the credit markets which made deals less attractive to the debt issuers.

Be sure to monitor your positions closely if you're call options buyers.

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.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai


GC said...

Hi Tony,

Thanks for dropping by my blog, and thanks for your advise. Earning season has just begun. Good luck and wishing you a profitable season.

Freely Batch 02

Tony Chai said...

Hi :

You were quite spot on with your selection of BGC and MA which had made large price gap movement after earnings announcement.

Were you bullish or bearish on their anticipated price movement before earnings?

By the way, how did you filter out stocks which would make substantial price movement after earnings?

In my case, I've keep track of stocks which would have potential price movement after earnings mostly through previous experiences and logging them in my trading journal.

Yours Truly,

Tony Chai

Anonymous said...

Hello I just entered before I have to leave to the airport, it's been very nice to meet you, if you want here is the site I told you about where I type some stuff and make good money (I work from home): here it is