Saturday, October 11, 2008

A Trade on INFY

Dear fellow options traders :

Noted that Infosys Technologies Ltd (ticker : INFY), an IT company providing information technology enabled business solutions, would be reporting earnings on 9 Oct 08, after-market-close.

I believed a lot of you have witnessed how the global stock markets were hammered hard by the tumultuous financial turmoil recently. This financial crisis, which stemmed from the bad sub-prime mortgages created a few years ago, was so bad that even the gigantic US$700 billion bailout package and the global efforts to cut interest rates, couldn't stop the continuous plummeting of the stock markets in these 2 weeks.

By the way, I've checked that the industry sector where Infosys Technologies Ltd (ticker : INFY) belonged to, ie. Technical System Software, did not perform too well either. I've also read from research analysts' comments in that most firms would cut their IT budgets in such a drastic economic environment.

Thus, I put up a limit order to buy a near-the-money Oct 30 Put option at $190.00 on Friday, 3 Oct 2008 when INFY was trading around $31.00.

On Monday, 6 Oct 2008, the US stock market plunged severely in the opening trading hours. When I saw the share price INFY plunged beyond -$2.00 around 10.00am EST, I quickly put up a limit order to sell my position at $440.00, which was executed pretty fast because the stock price plunged quickly beyond -$3.00 near 10.30am EST.

In such a volatile & depressing stock market environment, that was an opportunity where profit could be earned without me taking the risks to hold on to the position till earnings announcement on 9 Oct 2008.

Anyway, on 10 Oct 08 before-market-open, Infosys Technologies Ltd (ticker : INFY) reported Q2 earnings of $0.56, $0.01 better than the consensus of $0.55; revenues rose 19.0% year/year to $1.22 bln vs the $1.21 bln consensus. However, INFY reset its FY09 revenue growth rate guidance at 13%-15%, down from 19%-21%. On 10 Oct 08, INFY gapped down -$2.00 to $23.25 & closed at $23.91.

Yours Truly,

Tony Chai