A Few Trades To Share

Dear fellow options traders :

Q3 earnings season has started and these were some of the paper trades that I've made.

Apple Inc (AAPL) - Have been following Apple Inc's development for a while and foresee them to beat their Q4 earnings as I expected shipment of the new Macs, iPod & iPhone to be strong during the quarter. AAPL would usually guide conservatively for next quarter's earnings. Thus when AAPL provided upside guidance for its Q1 EPS & revenue numbers, the stock gapped up +$14.50(!!), much higher than the average gap price of $6.00, when market opened on 23 Oct 2007 (Tuesday). I bought a Nov 175 Call on the eve of earnings and sold it on 23 Oct 2007 for a $645.00 profit.



Apollo (APOL) - Apollo is an education provider and has performed well in the previous earnings quarter. I expected them to report equally well this quarter thus I paper-trdaed a Nov 70 Call. Although EPS was in-line at $0.60, revenue rose 14.2% year/year to $713.9 mln vs the $701.8 mln consensus. The management also approved an additional $500 mln for share repurchases. On 23 Oct 2007 (Tuesday), APOL gapped up +$3.50 to $69.50 and intra-day went up +$3.00 to close at $72.50. I sold the Nov 70 Call for a profit of $150.00.



However, I encountered a losing trade with :

Illumina Inc (ILMN) - I expected Illumina to peform well for its Q3 earnings due to a major research analyst's upgrade of the Life Sciences sector on 5 Oct 2007. The company also announced a multi-million dollar agreement with the University of Virginia and the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) on 15 Oct 2007 and on 12 Sep 2007, ILMN signed a fourth genotyping service agreement with Cancer Research UK. I bought a Nov 60 Call on earnings eve. Altough Illumina reported a good Q3 earnings quarter beating EPS by $0.15 & also beat on revenues; the stock was punished when the company guided Q4 revenue in-line. Thus, On 24 Oct 2007 (Wednesday), ILMN gapped down -$4.00 when market opened and I sold the Nov 60 Call for a loss of $339.00.



Yours Truly,

Tony Chai
Options Trading Resources

A Trade on SanDisk Corp (SNDK)

Dear fellow options traders :

3rd quarter earnings quarter has started. I understand that SanDisk Corp (SNDK), a maker of NAND flash storage products, would be reporting earnings on 18 Oct 2007 after-market-close.

From Breifing.com, I've noticed that a number of research analysts were optimistic that SNDK would report a strong Q3 quarter with solid guidance for Q4. But there were concern that the market had already priced in large upsides for the Q3 earnings, and that NAND supply would exceed demand in Q4.

If you have been trading stock options based on earnings gapping for a while, you would realize that the stock price of company would usually gap up if the company reported good earnings with good upside guidance for next quarter's earnings per share (EPS) and revenue. I was a little wary about buying a call option for SNDK earnings because on the same day (ie. 18 Oct 2007) when SNDK would be reporting earnings, EBAY plunged over 2 points when they had reported good earnings with good upside earnings guidance for the next quarter.

By checking SNDK's past price gapping history after earnings, I realized that SNDK would gap an average $3.00 up or down after earnings. Thus, I decided to buy an ATM Oct 50 Put option on 18 Oct 2007 at $210.00 per contract when SNDK was trading around $50.30.

After market close, SNDK did report a great Q3 earnings quarter. The cmpany reported Q3 (Sep) earnings of $0.54 per share, excluding non-recurring items, $0.21 better than the Reuters Estimates consensus of $0.33; revenues rose 38.0% year/year to $1.04 bln vs the $0.93 bln consensus. The CEO also mentioned in the earnings conference call that demand in Q3 was exceptionally strong internationally.

But alas on 19 Oct 2007, SNDK still gapped down -$3.60 to $46.76 when market opened. As I understand that SNDK price gapping habit was about $3.00 after earnings and that price gap had already been achieved when market opened, I quickly sold my put option at $360.00 for a profit of $150.00 around 9.35am EST. SNDK went down -$7.60 intra-day to close at $42.71.



I understood that I would be rewarded with a bigger profit if I had hung on to my position. But I was quite satisfied with the profit that I've obtained and since my option would be expiring at the end of the day, I did not want to risk turning my position into a losing trade if SNDK reversed position and rallied during the day instead.

Yours Truly,

Tony Chai
Options Trading Resources

Past Options Trades Arranged in Ticker Symbol Order

Dear fellow options traders :

My blog has grown quite substantially since I started blogging my options trades & experiences about 2 years ago. With too many blog postings, I understand that it's a bit difficult for bloggers to navigate my blog properly at times.

Thus, I've spent about 2 days revamping my blog with a new blog template which allows me to display the label tags.

I've tagged my blog in such a way that you can now zoom into specific trades (whether its a earnings gapping trade or momentum trade) based on specific stock ticker symbol. I hope you'll find the fundamentals / technical research that I've logged for initiating my option trades useful in guiding your own trading strategy.

Q3 earnings season has kick-started and big caps tech companies like YHOO, EBAY, GOOG would be reporting next week. Other companies worth keeping note include ISRG, SNDK, HWAY, CAT. These stocks have good price gapping history after earnings.

Have a Profitable Trading Week Ahead !!

Yours Truly,

Tony Chai
Options Trading Resources

Disclaimer : The stocks mentioned above are for your reference only. Do exercise due diligence in your stock research and trading decision. Thank You.

Breakfast at McDonald's

Dear Friends :

A few days ago, my former colleague forwarded an email with a wonderful story in it.

Here to share it with you :)

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I am a mother of three (ages 14, 12, 3) and have recently completed my college degree.

The last class I had to take was Sociology.

The teacher was absolutely inspiring with the qualities that I wish every human being had been graced with.

Her last project of the term was called "Smile."

The class was asked to go out and smile at three people and document their reactions.

I am a very friendly person and always smile at everyone and say hello anyway, so, I thought this would be a piece of cake, literally.

Soon after we were assigned the project, my husband, youngest son, and I went out to McDonald's one crisp March morning.

It was just our way of sharing special playtime with our son.

We were standing in line, waiting to be served, when all of a sudden everyone around us began to back away, and then even my husband did.

I did not move an inch... an overwhelming feeling of panic welled up inside of me as I turned to see why they had moved.

As I turned around I smelled a horrible "dirty body" smell, and there standing behind me were two poor homeless men.

As I looked down at the short gentleman, close to me, he was "smiling".

His beautiful sky blue eyes were full of God's Light as he searched for acceptance.

He said, "Good Day" as he counted the few coins he had been clutching.

The second man fumbled with his hands as he stood behind his friend. I realized the second man was mentally challenged and the blue-eyed gentleman was his salvation.

I held my tears as I stood there with them.

The young lady at the counter asked him what they wanted.

He said, "Coffee is all Miss" because that was all they could afford. (If they wanted to sit in the restaurant and warm up, they had to buy something. He just wanted to be warm).

Then I really felt it - the compulsion was so great I almost reached out and embraced the little man with the blue eyes.

That is when I noticed all eyes in the restaurant were set on me, judging my every action.

I smiled and asked the young lady behind the counter to give me two more breakfast meals on a separate tray.

I then walked around the corner to the table that the men had chosen as a resting spot. I put the tray on the table and laid my hand on the blue-eyed gentleman's cold hand.

He looked up at me, with tears in his eyes, and said, "Thank You."

I leaned over, began to pat his hand and said, "I did not do this for you. God is here working through me to give you hope."

I started to cry as I walked away to join my husband and son. When I sat down my husband smiled at me and said, "That is why God gave you to me, Honey, to give me hope."

We held hands for a moment and at that time, we knew that only because of the Grace that we had been given were we able to give.

We are not church goers, but we are believers.

That day showed me the pure Light of God's sweet love.

I returned to college, on the last evening of class, with this story in hand.

I turned in "my project" and the instructor read it.

Then she looked up at me and said, "Can I share this?"

I slowly nodded as she got the attention of the class.

She began to read and that is when I knew that we as human beings and being part of God share this need to heal people and to be healed.

In my own way I had touched the people at McDonald's, my husband, son, instructor, and every soul that shared the classroom on the last night I spent as a college student.

I graduated with one of the biggest lessons I would ever learn: UNCONDITIONAL ACCEPTANCE.

Much love and compassion is sent to each and every person who may read this and learn how to ...

LOVE PEOPLE AND USE THINGS - NOT LOVE THINGS AND USE PEOPLE

If you think this story has touched you in any way, please send to others.

There is an Angel sent to watch over you.

In order for her to work, you must pass this on to the people you want watched over.

An Angel wrote:
Many people will walk in and out of your life, but only true friends will leave footprints in your heart.

To handle yourself, use your head.

To handle others, use your heart.

God Gives every bird it's food, but He does not throw it into its nest.

Keep this going.

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Yours Truly,

Tony Chai

A Trade on Research in Motion (RIMM)

Dear fellow options traders :

If you have been trading options for earnings gapping announcement for a while, you would have known that Research in Motion (RIMM) would be reporting earnings on 4 Oct 2007 after-market-close.

Research in Motion (RIMM), maker of the BlackBerry Pearl and Curve Smartphones, gapped up almost 30 points back in 29 June 2007 when the company reported a mind-bowing Q1 earnings quarter with upside guidance topped with a 3 for 1 stock splits announcement.

RIMM made an impressive move of almost +$20.00 to touch $100.00 on 4 Oct 2007 since its post stocks-split day on 20 Aug 2007. Obviously, expectations have been running high towards another knockout Q2 quarter & upside guidance from RIMM and this is reflected in their expensive stock options, stuffed with rich, creamy fillings of high implied volatility.

I expected RIMM's stock price to run up higher towards the eve of earnings based on the past 2 months of research analysts' upgrades. Thus I paper traded a Oct 100 Call at $565.00 a contract on 3 Oct 2007 when RIMM was trading around $96.30. On 4 Oct 2007, eve of earnings announcement, RIMM went up intra-day around +$4.00 to touch $100.00. Since the position I bought had already earned $175 (excluding commissions) by 3.55pm EST, I decided to close the position without carrying the trade till earnings announcement.

My decisions for letting go of the position with a profit before earnings announcement were :-

1) Although there were a couple of research analysts' upgrades during the past 2 months, there were 2 research analysts' downgrades on 1 & 2 Oct 2007 respectively.

2) I noticed the piling up of the near ITM & OTM put options volume in comparison of the call option volume in the last trading hour and was a little concerned that the stock might not gap up after earnings.


On 4 Oct 2007, Research in Motion (RIMM) reported in-line Q2 (Aug) earnings of $0.50 per share and revenues rose 26.8% year/year to $1.37 bln vs the $1.36 bln consensus. But the Co. issued upside guidance for Q3, expecting EPS of $0.59-0.63 vs. $0.55 consensus and Q3 revenues of $1.60-1.67 bln vs. $1.52 bln consensus. Subscriber account additions in Q3 are also expected to be approximately 1.65 million.

Alas, on 5 Oct 2007, RIMM gapped up +$7.70 to $107.60. The Oct 100 Call closed at $13.95 on 5 Oct 2007, rising a total of about +$5.80 intra-day.

Yours Truly,

Tony Chai
Options Trading Resources