Sunday, August 10, 2008

Trades on WFMI & PCLN

Dear fellow traders :

Traded 2 counters that I've highlighted to my newsletter subscribers for earnings gapping analysis.

The first was Whole Foods Market Inc (WFMI), which reported earnings on 5 Aug 08 after-market-close (AMC). Found that the management had to cut expenses and to minimize stores expansion to keep the margin in-check. In this tight economic conditions & with competitions coming in, analysts expected WFMI FY09 earnings to be down to $1.33 vs. consensus of $1.55. I bought a near-the-money Aug 22.50 Put on 5 Aug 2008 for $155.00 per contract when wFMI was trading around $22.80.


On 5 Aug 08 AMC, WFMI reported Q3 earnings of $0.24 per share, $0.07 worse than the consensus of $0.31; revenues rose 21.6% year/year to $1.84 bln vs the $1.91 bln consensus. The co. also issued downside guidance for Q4, expected EPS of $0.13-0.15 vs. $0.27 consensus. Co issued downside guidance for FY09, expected EPS of $1.08-1.14 vs. $1.52 consensus. In addition, the co. would be suspending its quarterly cash dividend for the foreseeable future.

On 6 Aug 2008, WFMI gapped down -$4.10 to $18.87 when market opened. I sold the Aug 22.50 Put when it could fetch around $401.00 per contract.



The other counter, Priceline.com Inc (PCLN), was a paper-trade as I assessed the options premium to be overly inflated as a worthwhile trade. PCLN also reported earnings on 5 Aug 08 AMC. As PCLN past earnings gapping range was between $15.00 to $20.00 in previous quarters,I paper-traded a Aug 110 Put for $580.00 per contract when PCLN was trading around $115.00.

On 5 Aug 08 AMC, PCLN actually reported impressively that Q2 earnings were $1.55 per share, $0.14 better than the consensus of $1.41; revenues rose 44.4% year/year to $514 mln vs the $495.7 mln consensus. Q2 gross travel bookings increased 70.9% y/y vs. co's guidance of 65%-75%; international gross travel bookings increased 80.1% y/y vs. co's guidance of 80%-90%. However, the co. issued in-line guidance for Q3, expected EPS of $2.00-2.15 vs. $2.05 consensus. Co also expected Q3 year-over-year increase in gross travel bookings of ~44%-54%, with intl gross travel bookings of ~58%-68%. The Co. raised guidance for FY08, expected EPS of $5.50-5.85 vs. $5.54 consensus, up from prior guidance of $5.25 to $5.65. The management commented that economic uncertainty and high fuel prices were affecting the broad travel market and significant airline capacity reductions in the fall would have a negative impact.

On 6 Aug 08, the market didn't react well to PCLN earnings and PCLN's share price gapped down -$15.50 to $101.72 and moved down further -$4.50 intra-day to close at $97.17. I sold the Aug 110 Put for $1,340.00 at the point when PCLN touched $97.00 (ie. -$20.00).




Yours Truly,

Tony Chai

9 comments:

Options Trading said...

We had many traders in the put options on PCLN as well as direct shorts. A perfect example of when a stock beats earnings, raises guidance and gets slaughtered.

PW said...

Thanks for being transparent with your trades. Keep it coming...

I know you just love those kind of trades.

PW said...

Yup been there done that, way to many times. You would think I would learn by now :)

Happy Trading, PW

Joul said...

It's been a while and glad you post your latest trades. Keep it up man!

Tony Chai said...

Hi pw, joul :

Thanks for your postings.

It's glad to see you guys have your own trading styles that I could also learn a thing or two from.

Regards,

Tony Chai

Joul said...

Tony,

Thanks for leaving a valuable message on my latest blog post. However I would like to apologise as it disappeared when I tried to approve the comments. There were 3 comments to be moderated and it's not hard to tick all of them and select "approve". The 1st and 2nd comments did appear in my blog but the 3rd one disappeared and it happened to be yours. Once again,

I appreciate your views and comments and I am sorry that it's not there.

Please take your time to repost should you intend to, if not that's not a problem at all.

Best Regards
Joul

Tony Chai said...

Hi Joul :

It's quite a long post & not sure whether I would be able to re-post it :) Anyway, hope you find it useful.

Regards,

Tony Chai

Joul said...

Hi Tony,

I really appreciate your latest comment as it clearly defines what I have been thinking lately yet lack of concrete experience from senior graduates.

Thank you
Joul

Tony Chai said...

Hi Joul :

In many ways I think you're a far better trader than me in the earnings gapping technique because you've included good TA analysis (an area which I admit I'm quite weak in) in your decision making.

So it doesn't mean as senior graduate I would trade better than you :)

Keep up the good work, my friend. Hope to meet you personally & learn from you one day especially on the TA aspect.

Yours Truly,

Tony Chai