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


Anonymous said...


Do you usually trade options when the volume is this low?

I would think this would put you at the mercy of the market maker when opening and closing your position.


Tony Chai said...

Dear George :

I went into this position because RRGB had prior big gapping for earnings back in Aug 2005 and early April 2006. If I'm not wrong, on Nov 2007. Stock price gapped down in the region of $13.00.


Tony Chai

Chad said...

Tony- Nice trades on all three of your most recent! I took a look at the current Implied Volatility of all 3 and I noticed that for BCSI, the Implied Volatility was VERY HIGH around the time you bought that put (over 90%).

When you are trading these options so close to the earnings dates, are you at all concerned that you may be paying a higher price due to the markets expectations for a large move?


Tony Chai said...

Hi Chad :

Back in Nov 2005 & Feb 2006, BCSI experienced 2 big gap down in the range of $12.00 due to earnings.

That's why I purchased a cheaper 2 strikes OTM put option with anticipation of such a big move but nevertheless the stock gapped down only $5.00.


Tony Chai