Monday, June 23, 2008

A Trade on CarMax (KMX)

Dear fellow options traders :

Noted that CarMax (ticker : KMX), a retailer of used cars, would be reporting earnings on 18 Jun 2008 BMO (before market opens).

We are facing a difficult environment where oil kept pushing towards US140 a barrel & consumers are tightening their spending. I felt that CarMax (KMX) would have a tough earnings quarter just like their recent reported quarters in this economic environment. A look at the industry ranking chart of KMX shows that the industrial sector where the company belonged to was apparently weak.

I bought a Jun 17.50 Put on 10 Jun 08 for $60.00. KMX share price actually went up from 16 to 17 Jun 2008, 2 days before earnings. On 18 Jun 2008, KMX reported Q1 earnings of $0.13 per share and might not be comparable to consensus of $0.22. Revenues was up 2.9% year/year to $2.21 bln vs the $2.28 bln consensus.

The management reported that sales slowed during the quarter, and since Memorial Day weekend, traffic and sales weakened further. The company also temporarily suspended guidance on comparable store sales and earnings for fiscal 2009.

Thus on 18 Jun 2008, I sold the Jun 17.50 Put for $130.00 around 10.00am EST.

Yours Truly,

Tony Chai