A Losing Trade on Daktronics Inc (DAKT)

Dear fellow options traders :

Noted that Daktronics Inc (ticker : DAKT), a company which specialized in electronic scoreboards & large electronic display systems, would be reporting earnings on 26 Aug 2008 before market opened. A look at the industry sector in which DAKT belonged to showed that there were hardly institutional money flowing in.


Also checked Briefing.com news and read that the sluggish US economy could curtail revenue expansion. I felt since that since the credit crisis was far from over, it could also affect the company's business. Thus, I bought an in-the-money (ITM) Sep 20 Put option for $215.00 on 25 Aug 2008 when DAKT was trading around $18.50. Why ITM? Because DAKT was not really a big mover for earnings in the past. Thus, I want to capture as much intrinsic value in my premium as possible if the stock price moved towards my anticipated direction after earnings.

On 26 Aug 2008 before market opened, DAKT reported Q1 earnings of $0.22 per share, $0.07 better than consensus of $0.17; revenues rose 33.3% year/year to $161.2 mln vs the $141.5 mln consensus. The company reiterated its financial guidance for fiscal 2009, expecting net sales to increase by more than 20% over fiscal 2008 and operating margin would range from 8.0-9.5%.

On 26 Aug 2008 when market opened, DAKT gapped up about +$2.50 to $20.50. I quickly closed my position when the Sep 20 Put option could still fetch $100.00. Unfortunately for me, DAKT's stock price did went down intra-day, especially after the conference call which commenced at 11.00pm EST, to close at $17.40 at the end of the day. But I've learned through the hard way to execute my stop loss while I still could get back some capital instead of hoping & praying that the stock would move towards my desired price level.



But something which amazed me was that on 25 Aug 2008 (eve of DAKT's earnings date) about 3.00pm EST, DAKT dropped like a rock for about -$0.70 from $18.75 to as low as $18.05 during that one hour before market closed. Made me wonder whether the panic selling was initiated so that they could be pick up cheaper before market close. Of course, on the following day, the position would make a handsome profit when the stock gapped up after earnings.


Yours Truly,

Tony Chai

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

Urgent : Uninstall Zone Alarm for the Moment

Hi :

If you or anyone you know have problems connecting to the internet during the past 2 days, it might be because the recent upgrade that you've downloaded for Zone Alarm causing this problem. Uninstall Zone Alarm from your PC at the moment. Spread this message to anyone whom you think might encounter the same problem.

Regards,

Tony Chai

Latest : You can now solve this problem by going to this link.

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

Some Trades to Share

Dear fellow options traders,

This was a bearish week. The Dow Jones industrial average fell almost 400 points on Tuesday & Wednesday (20 & 21 May 08) due to crude oil reaching record price of US134 per barrel. The market was down also due to the bleak economic assessment from the Federal Reserve meeting minutes.

I've recommended a few US equities for this week's earnings gapping analysis to my newsletter subscribers. Most of these companies saw their stock prices gapped down after earnings announcement.

I've traded the Jun 35 put option for Red Robin Gourmet Burgers Inc (ticker : RRGB), which operate casual dining restaurants in the US and Canada. I was a bit concerned about the US consumers spending habit in view of the weak economical environment. Besides, I checked from shortsqueeze.com that RRGB garnered a high short interest of almost 50% of the float, indicating that investors were mostly pessimistic of this stock. The Jun 35 put were bought at $60.00 per contract. After earnings announcement, RRGB gapped down -$1.20 to $37.46 and intra-day went down -$2.40 to close at $35.05. I closed the put option position for about $120.00 on 21 May 08 shortly after the market opened.



I've also bought a Jun 17.50 put option for Blue Coat Systems Inc (ticker : BCSI), maker of hardware appliances and software for WAN technology, for $45.00 per contract on 20 May 08. I did not buy the nearer 20 strike because I felt the stock price might gap up or might not even gap at all since it's very near the 52-week support stock price level. On 22 May 08, BCSI reported a miss of 7 cents for their Q4 earnings' EPS (earnings-per--share) and the stock price gapped down -$5.60 to $17.00 when market opened. I sold the put contract at $145.00.



On 22 May 2008, I've bought a Jun 30 put option of Black Box Corp (ticker : BBOX), a company which provide various network infrastructure services, at $80.00 per contract. On 23 May 2008, I sold the contract for $130.00 shortly after the market opened.



Hope you had a profitable week too.

Yours Truly,

Tony Chai
Options Trading Resources