MA - Mastercard Inc Cl A - A Losing Trade

Dear fellow options traders :

MA (Mastercard Inc Cl A) gapped up about $7.00 when it reported a stellar 3rd quarter earnings on 1 Nov 2006.

Thus, naturally there would be high expectations build up towards the 4th quarter earnings reporting on 9 Feb 2007. Since Jan 2007 till 9 Feb 2007, MA has risen about $10.00 to close at $111.90 on 7 Feb 2007. On 8 Feb 2007, eve of earnings announcement, MA even spiked up about $2.70 to close at $114.74 apparently on the optimisim that MA would topped consensus earnings figures again. High expectations were so built up towards MA's earnings announcement that the options were expensive.



I paper-traded a Feb 110 Put for about $320 on 8 Feb 2007, eve of earnings announcement, when the stock price was hovering around $114.00. The put contract was already out-the-money by $4.00 and I still have to pay a time-value premium for a Feb 110 Put for $3.20!! This means that the stock has to drop beyond $7.20 before my put option would turn profitable. The put option is simply too expensive with the built-up in implied volatility leading towards the earnings announcement. This is an important factor that options traders have to take note when deciding whether to trade such an expensive option for earnings announcement - is the risk/reward ratio worth it?

On 9 Feb 2007 before-market-opened, MA did report a good 4th quarter's earnings as expected. MA earned $0.31 per share, excluding non-recurring items, $0.16 better than the Reuters Estimates consensus of $0.15. Revenues rose 17.2% year/year to $839 mln vs the $821.5 mln consensus. But since expectations have already been built into a good earnings quarter, MA dropped very quickly after market opened, plunging to -$7.80 to $106.80 by 10.19am EST, athough during pre-market trading MA went up about +$4.00.

I sold my put option when MA hit $108.60 around 10.00am EST. Although it has dropped more than $6.00 by that time, I still lose money (about $19.00 including commission) because as I've mentioned earlier, the option was already very expensive when MA need to drop beyond $7.20 before I could make money. MA did fall further from 10.15am EST onwards but I exited my trade earlier because I realised that the buyer side of the Level 2 Code was slowly gaining strength around 10.00am EST.

After MA earnings conference call, Prudential believed that overall, they did not find any indication in either 4th quarter results or management's commentary that would lead them to have any concerns about future earnings growth. This might be a good indication that come next earnings quarter when investors generally have low expectation, MA might gap up nicely if it report yet another stellar earnings quarter.

On 9 Feb 2007, MA closed at -$11.14 to $103.60.

Yours Truly,

Tony Chai
http://www.myoptionsonline.com

First Winning Trade in 2007 - HELE

 
Dear fellow options traders :

4th quarter earning season kick-started this week.

On 8 Jan 2007, I bought an at-the-money Jan 25 Put option of Helen Of Troy Ltd (HELE) at $0.90 when the share was trading around $25. This company engages in the design, development, production, and distribution of a portfolio of brand-name consumer products. The company operates in two segments, Personal Care and Housewares.



From Motley Fool's analysis of HELE before earnings announcement, I realized that the 2nd quarter earnings reported on 5 Oct 2006 was considered "surprising", where HELE gapped up about $3.70 on that day. I took a look at the balance sheet and realized inventory level was high. From Nov 2006 to early Jan 2007, the share was trading in a tight range of between $23 and $25. I anticipated that the earnings announcement on 9 Jan 2007 to have some impact to the stock price based on previous gapping price movement from earnings announcement. I decided to buy the put option also because premium wasn't inflated much by implied volatility.

On 9 Jan 2007, Helen of Troy (HELE) reported that fiscal 3rd quarter earnings rose to $22.8 million, or EPS of 72 cents a share, from $22.7 million, or 72 cents a share, a year earlier. Revenue increased to $213.4 million from last year's $197.5 million. Analysts surveyed by Thomson First Call were expecting EPS of 85 cents a share (EPS had missed by $0.13) and revenue of $204.6 million. Earnings were hurt by gross margin pressure in its personal care and housewares businesses, as well as by expenses associated with the OXO warehouse transition. For the fiscal 4th quarter, the company expected earnings of 25 to 30 cents a share, vs. analyst forecasts of 36 cents a share.

On 9 Jan 2007 (Tuesday), HELE dropped -$2.44 to $22.25 around 8.31am EST. I Sold my Jan 25 Put for $2.70 around 9.53am EST when HELE was $22.21. By 11.10am, HELE reached $22.15 (-$2.54). The put option could fetch $2.75. After the earnings conference call started from 11.00am EST, HELE went up to $22.25 (-$2.44) around 11.20am EST.

The above trade was based on gapping analysis, one of the technique taught by Dr Clemen Chiang to trade equity options when I attended the Live Freely Options Trading Seminar Workshop (Singapore).

You can take a look at my review of the Live Freely! Seminar HERE.

If you've managed to find out more about the Live Freely! Seminar from this blog and subsequently sign up for it, I hope you could do me a kind favour and mention Mr Tony Chai from Batch 14 as the referrer. Thank you for your kindness.

Currently, I'm still working hard to achieve profitable trades consistently.

Wishing you Profitable Trades in 2007.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

Insider Trading and How To Profit From It

 
Checking for legal insider trading by company's key personnel & institutions is an important step whenever I analyse stocks for options trades based on earnings announcement. I came across a great article about legal insider trading as followed and I hope you would find it useful to guide your next trading decision.

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We want to talk a little about legal insider trading for a minute, because we have seen interesting things happening lately that should be discussed.

When someone mentions insiders making buys or sells, all kinds of flags go up. But it is perfectly legal and ethical for insiders at corporations to sell some of their holdings and buy more when they think the time is right. The real point is "what is the motive?" That is what you (we) all need to try and perceive.

Let's say you are offered a senior management position and in your contract you get 50K shares of company stock after 2 years of service. Nothing out of whack there. Then let's say you are there for 5 years and decide that you want to buy that house up in the mountains. Is there anything wrong with selling 30K shares? Nope, not at all, it was after all part of your pay package.

On the other hand, let's say we see 3 insiders sell most of their holdings in their own company, just a month before earnings season. Does that raise a flag? Yup. When insiders are selling enmasse, it often spells trouble. Think about it. Except for a few well placed sales now and then, there isn't a lot of reason for insiders to be selling unless they don't see any good reason to hold it!

On the other side of the coin, we know of only two reasons that an insider buys his own company's stock. One is that the company puts him up to it. Yes folks, don't be shocked, companies have been known to pressure executives to buy company stock just to give the illusion that the stock is so attractive the insiders are buying it. But, it's generally only a few shares (10K or less) and a few people.

The other reason an insider will buy is that he genuinely believes the stock will appreciate in value. Well, no one has a better view of the company than the people running it right? If insiders are seeing good sales trends and can relate those trends to rising earnings, it makes perfect sense to buy some stock! Now, don't confuse this with stock "buy backs" that we are seeing now and then. A company buy back is a much different animal. It's still a "positive" but not nearly as telling as insiders deciding to buy 100K shares of their own stock.

How can you use this info? Scan the filings folks. If you see two or more insiders buying 40K or more shares of their own stock, we can almost bet you that in the next few months that stock is going to be higher. We saw it happen sometime back with NXTL. We told you that almost 100K shares were purchased by an insider, and "boom" they beat the estimates huge, spiking the stock by 60%. This guy "knew" and it's perfectly legal.

So, when you see insiders buying more than "token" amounts of stock you need to watch that stock. Likewise if you see insiders selling like they are all in a panic to get out, you need to avoid it or maybe even short it. No one knows their own business better than an insider and if they are bailing, you should too. You can also check for insider selling and buying at Yahoo.com, just punch in the stock symbol and then scroll down and look for "insider".

From http://www.optrading.com

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Some of the web-sites where you check for legal insider trading filing :-

http://www.form4oracle.com


http://www.secform4.com/sec-filings.htm


http://www.sec.gov/edgar/searchedgar/webusers.htm


Wishing you Profitable in your Trading too.

Merry Christmas and a Prosperous 2007 !!!

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

New 2007 Edition of the Options Mastery Series

 
Dear Traders :

The Options University is nearly sold-out of the New "Options Mastery Series 2007 Edition" and are now down to below 100 copies...

Will they release it again? Sure...

But not until March of 2007, and if I have my way, it's going up another 500 bucks to $1997.

Now that may seem like a lot...

But not when you consider what you're getting!

Mr Ron Ianieri has spent 15 YEARS on as a professional options trader to learn these secrets...

...And now you can use the same insider tricks, strategies, and secrets that Ron has used for years to dominate the crowds he was in down on the floor, making millions of dollars for the firms he has worked for... and he made some huge bonuses doing it too.

If you're asking yourself "Then why isn't he still doing it?!?"

Simple.

The floor went digital, and the floor traders were phased out.

Including Ron ...

So he decided this was a chance to do what I've always wanted to do...

Teach options and trade for my myself.

These are 2 of his utmost passions.

And that's good news for you...

Because now you can tap into Mr Ron Ianieri's 15 years of experience and 'look over his shoulder' as he let you in on some of my biggest secrets and teach you about how to consistently pull respectable profit.s out of the markets using options ...

So if you're still "on the fence" we urge you to review the videos and recordings below.

Here's what one student who's been following the Mastery Series since last year had to say about the course:

"I have owned the Options Mastery Series for almost a year now .. and have had a steady winning track record of small trades.

"I started out with a $1,500 account as a result of some poor training by the "Other Guys" and now have an $9,000 account. This I consider not bad for just six months of active trading.

"It took me six months to really become comfortable with the wealth of information Ron was feeding me. It was only after that "I believe I can do this" feeling that I started to make those first small trades (one to three contracts) at first.

"Well, the strategies Ron taught really worked! I believe now that there is no limit to what I can accomplish given I stick to what I have learned. If you truly want to become successful at trading options, then Ron's course is the one you should invest your money and time into."

Jesse Malczyk

Click Here to Read What Our Other Students Are Saying

Sharing My Thoughts on Options Trading

 
It's been almost 2 years since I started trading options - mainly share options. I have to admit 2 years is not long compared to many successful, professional traders who have been trading in no less than 10 years. It's just that I wanted to share some of my personal experiences in this journey so far.

I remembered after graduating from Dr Clemen Chiang's Live Freely Options Trading Seminar back in Nov 2004, I started traded options based on the gapping analysis technique taught in the seminar. My initial trades were good, mostly attributed to the so-called "beginners' luck". Then the trades started turning "bad". I lost money and I began to doubt the technique. The truth is, I haven't master the technique with enough trading experiences. To make matters worst, I "got creative" and developed my own trading techniques and didn't test them first with paper trading and subsequently got punished by the market. No offence to my options trading buddies but I also traded haphazardly based on what were discussed in our online trading forum and they turned out to be losing trades as well.

Watching my capital drained so quickly made me lost quite a bit of confidence thus I shut myself off the market for a few months. In these few months I read some books related to stock & options trading by authors like Lawrence G. McMillan, William J. O'Neil, Nicolas Darvas, Gary Smith etc. I find them useful and gained some knowledge especially on the psychological aspect of trading.

I re-learned what was taught in the Live Freely Options Seminar and reminded myself to follow the steps strictly and only entered an option trade when the conditions were met. I also started a options trading journal - which is actually a MS Word document - where I recorded information like the stock options I chose to trade & had traded, the reasons to enter a trade based on fundamentals research/technical analysis, the outcome of the trade - whether good or bad, the mistakes that I've made and how to avoid them in the future etc. This options trading journal has since become a very important reference tool even till today to guide my options trades.

Once again, the first few trades were good. I've even earned more than 1000% profit from 2 of the trades as recorded here. Then I started growing bored again as a few weeks have passed and I didn't encounter any good options trades based on my gapping analysis conditions. So, I became impatient and went into my "destructive cycle" again trading options based on my "creative techniques" - without testing them with paper trades. This time - I lost money even faster than my 1st round.

So, I became inactive in the options market for a while again and during this time I brushed up my fundamentals analysis research by subscribing to Investors Business Daily SmartSelect Corporate Ratings which provide very thorough analysis of every companies' fundamentals. I learned some more technical analysis stuff like the candlestick chart patterns. At the same time, I also wrote some options trading articles in my web-site which I hope would guide beginner options traders to pick up some basic skills.

I started trading options a few months ago and this time I've been disciplined and trade options based strictly on the conditions which met my gapping analysis research criteria. If no trades satisfy my criteria, I just walk away. I'm glad to inform that so far I've some profitable trades and although I did encounter some losing trades along the way my trading capital is still healthy. I really hope that I will maintain my trading discipline this time round.

Although being disabled, I'm still persevering in this options trading journey even after taking a few hard knocks. I hope this would encourage you not to give up quickly too soon, whether you are now trading options, shares, forex, futures etc.

Here wishing everyone a Merry Christmas and a Healthy & Prosperous 2007.

Yours Truly

Tony Chai

P.S. Are there any options trading secrets? You might ask. From my experiences, winning in the options trading profession comes from the refinement of your trading techniques as you apply and learn from them during your options trading. If a particular options trading technique yields you profits consistently, jot down the circumstances which lead to such winning trades in your trading journal so that when such circumstances occur next time, you would know that entering such trades would yield a higher probability of success. It pays to be patient to stick to a winning formula although the particular technique may not produce that much trading opportunities. Remember that I lost money when I felt bored and experimented with new, untested techniques. So when you feel bored, simply stay away from the options market. Meanwhile, upgrade your trading knowledge by reading books, attending seminars or surfing the internet for relevant information.