A Trade on Apollo Group Inc (APOL)

Dear fellow options traders,

Noted that once again Apollo Group Inc (ticker : APOL), an education provider, would be reporting earnings on 27 Mar 2008, after-market-close.

Apollo Group Inc (APOL) reported a great Q1 earnings quarter back in 8 Jan 2008, where the stock price gapped up accordingly after earnings announcement. Earnings were good partly due to when the economy weakened, working adults would enroll for degree programs to upgrade themselves. Although the US economy has somewhat weakened further this time round, I was a little concerned whether the enrollment figures for the degree programs could drop due to the recent tightening of student loans, the outcome of none other than the worsening credit crunch environment.

A look at the industry ranking chart of at Prophet.net indicated that the "Education Service" sector is not looking healthy recently.


Besides, APOL has already gapped up 3 times in the past 3 quarters of earnings announcement and I felt that it has over-extended its expectation for another gap up based on earnings announcement. I have written something related about this in an earlier blog entry.

With APOL trading at $59.00 intra-day on 27 Mar 2008, eve of earnings announcement, I realized that the at-the-money (ATM) Apr 60 Put hit a high of almost $5.00 per contract. As APOL had in the previous earnings quarter gapped at least $6.00 followed by an intra-day share price movement of $4.00 for a potential total price movement of $10.00, I decided to paper-trade the next out-the-money (OTM) Apr 55 Put at the price of $2.85 per contract.

On 27 Mar 2008 AMC, Apollo Group Inc (APOL) reported Q2 earnings of $0.41 per share, excluding non-recurring items, $0.11 worse than the consensus of $0.52; revenues rose 14.0% year/year to $693.6mln vs the $703.5mln consensus. Tighter credit conditions made it more difficult and expensive to finance higher education, thereby challenging Apollo's model. Earlier this year, the company was found guilty of securities fraud and estimated damages and associated expenses would range from $120 million to $216 million.

On 28 Mar 2008 when market opened, APOL gapped down as much as -$14.00 to $42.00 within the few minutes and I sold off the Mar 55 Put position immediately for a paper profit of $845.00 (including commissions).



Yours Truly,

Tony Chai
Options Trading Resources