Saturday, May 24, 2008

Some Trades to Share

Dear fellow options traders,

This was a bearish week. The Dow Jones industrial average fell almost 400 points on Tuesday & Wednesday (20 & 21 May 08) due to crude oil reaching record price of US134 per barrel. The market was down also due to the bleak economic assessment from the Federal Reserve meeting minutes.

I've recommended a few US equities for this week's earnings gapping analysis to my newsletter subscribers. Most of these companies saw their stock prices gapped down after earnings announcement.

I've traded the Jun 35 put option for Red Robin Gourmet Burgers Inc (ticker : RRGB), which operate casual dining restaurants in the US and Canada. I was a bit concerned about the US consumers spending habit in view of the weak economical environment. Besides, I checked from that RRGB garnered a high short interest of almost 50% of the float, indicating that investors were mostly pessimistic of this stock. The Jun 35 put were bought at $60.00 per contract. After earnings announcement, RRGB gapped down -$1.20 to $37.46 and intra-day went down -$2.40 to close at $35.05. I closed the put option position for about $120.00 on 21 May 08 shortly after the market opened.

I've also bought a Jun 17.50 put option for Blue Coat Systems Inc (ticker : BCSI), maker of hardware appliances and software for WAN technology, for $45.00 per contract on 20 May 08. I did not buy the nearer 20 strike because I felt the stock price might gap up or might not even gap at all since it's very near the 52-week support stock price level. On 22 May 08, BCSI reported a miss of 7 cents for their Q4 earnings' EPS (earnings-per--share) and the stock price gapped down -$5.60 to $17.00 when market opened. I sold the put contract at $145.00.

On 22 May 2008, I've bought a Jun 30 put option of Black Box Corp (ticker : BBOX), a company which provide various network infrastructure services, at $80.00 per contract. On 23 May 2008, I sold the contract for $130.00 shortly after the market opened.

Hope you had a profitable week too.

Yours Truly,

Tony Chai
Options Trading Resources

Thursday, May 01, 2008

A Trade on Visa and Garmin

Dear fellow options traders :

Noted that Visa Inc (ticker : V) would be reporting earnings on 28 Apr 2008 after-market-close. Actually way before Visa's earnings announcement date, I've noticed that the implied volatility of the May options were still not overly inflated. Thus, on 18 Apr 2007, I bought 1 contract of May 75 Call for $140.00 per contract and 1 no. of May 80 Call for $45.00 when Visa was trading around $70.00.

On 28 Apr 2008, eve of earnings announcement, Visa (ticker : V) has already reached $75.00 and the implied volatility has already jumped to 54% compared to less than 50% when I bought the call options.

Thus, before waiting for earnings announcement after-market-close; and we knew how unpredictable the share price would react after such announcement, I sold the May 75 Call at $500.00 for a profit of about $360.00 (excl. commissions). I retained the May 80 call for the possibility that Visa's share price might gap up if they would announce good earnings.

On 28 Apr 2008 after-market-close, Visa reported Q2 earnings of $0.52, $0.07 better than consensus of $0.45; revenue was up 22.0% year/year to $1.45 bln vs the $1.43 bln consensus. However, the management expected lower operating margin later in the year due to increased expenses. The share price gapped down close to -$5.00 to $71.00 in the after-market trading after the earnings conference call. I was prepared that my May 80 call would be worthless tomorrow.

On 29 Apr 2008, Visa gapped down very quickly to $71.00 when market opened. I didn't think much about it until I saw Visa rebound to about $76.00 near 12.00pm EST where I could now close my May 80 Call for a profit. Thus I sold the position at $155.00 for a profit of about $110.00 (excl. commissions). I understand that if I've held on till 30 Apr 2008, both of my positions would have earned much, much more money since Visa soared to about $83.00. I would be bluffing if I said I didn't regret selling too early but past experiences have taught me to close an option position when I still could have a profit. In the past, I've ever encountered watching my option position gaining a +$300.00 profit and turned into a losing one just within 1 hour due to my greed to earn more and not being willing to let go of the position when I saw my profit eroding fast.

But I have to congratulate those who have hang on to their call positions till 30 Apr 2008 for a hefty profit on Visa. I would certainly take note of this incident for Visa's next earnings announcement.

After I closed my trade on Visa, I shifted my focus on Garmin (ticker : GRMN) which would be reporting earnings on 30 Apr 2008 before-market-open. I've researched that the PNDs (portable navigational device) were not selling well recently. The share price of SiRF (ticker : SIRF), a leading GPS chipmaker, was down since Feb 2008 due to weak GPS/PND demand. On 8 Apr 2008, TomTom lowered its 2008 revenue outlook after cutting prices for its personal navigation devices during the first quarter, pushing its shares to a 32-month low. A look at the industry ranking chart of GRMN also revealed that this sector was also weak.

Thus, I bought a May 40 Put option for Garmin (ticker : GRMN) for $80.00 per contract on 29 May 2008 when the share price was trading at $46.00. I did not but a May 45 Put because I was a little concerned that GRMN has already reached its support level and might not gap down after earnings announcement.

On 30 Apr 2008, Garmin (ticker : GRMN) reported Q1 earnings of $0.69, $0.06 worse than consensus of $0.75; revenue was up 34.9% year/year to $663.8 mln vs the $705.1 mln consensus.

On 30 Apr 2008 when market opened, GRMN gapped down -$6.00 to about $40.00 around 10.00am EST. I was thinking that if more bad news were revealed during the earnings conference call which would commence at 11.00am EST, the share might be punished further. But during the conference call, although it was announced that the company expected full year ASP (average selling price) to decline 25%, GRMN attempted to rally. Thus, I closed the position at $150.00.

Yours Truly,

Tony Chai
Options Trading Resources