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