A Close-Shave Trade on Goldman Sachs (GS)

Dear fellow stock options traders :

The trade on Goldman Sachs (GS) was initiated due to a discussion started by my buddy, Redyellowblackdog, at myLot entitled "Oversold Stocks?"

Redyellowblackdog happened to screen out a list over-sold stocks that he felt might rebound. By the way, he has a stock analysis web-site at PolyDimensional Analysis

That prompted me to take a look at Goldman Sachs (GS) daily chart. I observed that GS happened to close higher on the day ie. 8 June 2007, the day that Redyellowblackdog initiated the discussion, after a series of down days beginning from 1 June 2007.


On 11 June 2007, GS closed higher again, giving confirmation of GS's continued uptrend. I also understand that GS would be reporting earnings on 14 June 2007, and I believed that would fatten the options premium due to the increase in implied volatility.

That prompted me to paper trade 2 nos. of June 230 Call at $410.00 each on 12 June 2007. I observed the closing hours and decided to hold on to the position till the next day ie. 13 June 2007.

On 13 June 2007, GS gapped up about +$2.00 to $229.00 when market opened. I'd decided to observe GS's reaction to the release of Fed Biege Book later in the afternoon and the build-up of implied volatility leading to earnings announcement to determine whether to exit the position.

After the release of the Fed Biege Book, the stock market rallied. I also observed that GS started to move up strongly about +$2.00 to $233.00 after 3.30pm EST. That really fattened the implied volatility & intrinsic value of the June 230 Call as it became in-the-money. After observing the Level 2 Code and making a quick decision whether GS call option could fetch at least $500 a contract if it reported good earnings on 14 June 2007, I decided to close my position & sold the contracts for $530.00 a piece.

On 14 June 2007, although GS reported 2nd quarter earnings of $4.93 per share, $0.17 better than the Reuters Estimates consensus of $4.76, the stock plunged more than $6.00 when market opened due to some concerns over the sub-prime mortgage business. The June 230 Call could now fetch less than $50.00 per contract.


Related Trade in my Stock Options Trading Blog

A Winning Trade - Goldman Sachs Group Inc. (GS)

If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

A Losing Trade - The Cooper Companies Inc. (COO)

Dear fellow stock options traders :


Understand that The Cooper Companies Inc. (COO) would be reporting earnings on 5 June 2007 after market close.

I've bought a ATM June 55 Call for $210.00 on 4 June 2007 when COO share price was hovering around $55.80 due to the following findings :-

1) I've researched that COO share price has gone up about $5.00 between 15 May 2007 to 21 May 2007 due to rumor of possibly being acquired. On 16 May 2007, Bausch & Lomb Inc. (BOL), a company belonging to the same industry, was acquired by a private equity .

2) At the same time, I've checked that companies like Align Technology Inc. (ALGN) and Patterson Companies Inc. (PDCO), which also belonged to the same industry (Medical/Dental-Supplies), have gapped up in their recent earnings announcement thus I felt COO might follow suit too.

However, I've made the following mistakes :-

1) I've bought the June 55 Call too early, about 2 days earlier to be exact. By 5 June 2007, COO has dropped more than -$1.50 to close at $54.10. I saw my call option premium shed to about $140 from my initial purchase price of $210 per contract. Lesson learned : Do not buy the option too early. At least wait till the eve of earnings announcement day to buy.

2) Since the share price of COO had started to weaken 2 days towards the earnings announcement day, that should have hinted me it was risky to hold on to the call option. A look at the past gapping history of COO revealed that on 12 Dec 2006 (eve of earnings), COO ever gapped down followed by forming an intra-day -$1.50 red candle. On 13 Dec 2006, COO plunged -$6.00 to $43.10 after earnings announcement. Lesson learned : study the chart movement carefully before buying the stock option contract.

On 5 June 207, COO reported 2nd Quarter (Apr) non-GAAP earnings of $0.48, comparable to the Reuters Estimates. Revenues rose 6.7% year/year to $225.5 mln vs the $227.7 mln consensus. The company also issued in-line guidance for FY07, expecting FY07 revenue of $927-967 mln vs. $929.14 mln consensus; the company also reaffirmed FY07 EPS guidance of $2.90-3.05.

On 5 June 2007, the market did not react favorably to COO's earnings results and COO promptly gapped down -$3.70 to open at $51.84. I looked at the Level 2 Code, price and volume and realized that the buying side was still strong. So I held on to my losing call option position and sold my contract around 3.55pm EST when it could still fetch back $80 and COO's price was $54.10.

Options premium would usually drop dramatically after earnings announcement due to the collapse of implied volatility. The option would only gain value if there's a substantial gap/down in the share price in the anticipated direction after earnings announcement.


Related Trade in my Stock Options Trading Blog

A Losing Trade on Mastercard Incorporated (MA) - 10 Feb 2007

If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

A Winning Trade - Blue Coat Systems Inc. (BCSI) Q4 Earnings

Dear fellow options traders :


Noted that Blue Coat Systems Inc. (BCSI) would be reporting 4th quarter earnings on 29 May 2007 after market closed. After some research, I'm convinced BCSI would report good earnings for Q4. These were my findings :-

1) positive commentaries from Briefing.com about BCSI strong foothold in WAN Optimization Products & their recent compliance with Nasdaq listing requirements.

2) significant insider market purchase by 10% owner till March 2007.

3) BCSI tops the industry sector - "Computer Sftwr-Security" from O'Neil Industry Groups, a monthly subscription service from Investor's Business Daily http://www.investors.com/

Thus, I paper traded 2 nos. of BCSI June 40 Call at $275.00 each.

On 30 May 2007, BCSI Reported Q4 earnings of $0.31 per share, ex items, $0.03 better than the Reuters Estimates consensus of $0.28; revenues rose 50.8% year/year to $54.5 mln vs the $53.2 mln consensus.

The company also guided EPS in-line for Q1, expecting EPS of $0.27-0.38 vs. $0.29 consensus; & guided revenues above consensus Q1 revs of $57-60 mln vs. $55.35 mln consensus.

But because of the sharp drop of about 6.3% in China's Shanghai Index, the US Stock market opened rather jittery on 30 May 2007 thus BCSI didn't really gap up after earnings announcement.

But the market sentiment steadily improved and BCSI went up correspondingly about +$2.00 intra-day to close at $43.00. On 31 May 2007, I sold the 2 contracts at $360.00 each for a profit of about $140.00 (including commissions).


Related Trade in my Stock Options Trading Blog

If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

A Winning Trade - Resources Connection Inc. (RECN)

Dear fellow options traders :


I bought a RECN April 35 Put contract for $185.00 each on 27 Mar 2007 when the stock was around $34.10. Resources Connection Inc. (RECN) is a professional services firm which partners with business leaders to solve problems, execute internal initiatives and transfer knowledge across all parts of a global enterprise via a web-based content management system.

The reason why I bought a put contract for RECN was mainly because a few weeks ago there were 2 companies (EXBD, FDS), which belonged to the same industry as RECN, also reported earnings but their share prices didn't respond well.

On 7 Feb 2007, Corporate Executive Board Co. (EXBD) gapped down -$11.42 to $84.00 after reporting its 4th quarter earnings. The Corporate Executive Board Company provides research, decision support tools, and executive education that focus on corporate strategy, operations, and general management issues.

On 20 March 2007, FactSet Research Systems Inc. (FDS), after reporting its earnings before the market opened, initially gapped up +$3.00 to $67.25. But the share dropped -$2.00 intra-day to close at $64.70. FDS also gave up more than $3.00 between 23 March 2007 to 26 March 2007, clearly reflecting some weakness of this industry. FactSet Research Systems, Inc. provides financial and economic information, and analytical applications to the investment community worldwide.

On 28 March after market closed, RECN reported 3rd Quarter GAAP earnings of $0.26 per share, including option expense and tax benefit, $0.01 worse than the Reuters Estimates consensus of $0.27; revenues rose 17.0% year/year to $187.5 mln vs the $185.7 mln consensus. On 29 March 2007, the share gapped down -$2.00 to $32.00 when market opened. I observed the Level 2 Code, price and volume action carefully before selling my April 35 Put around 10.00pm EST for $390.00 each making a profit of $205.00.


If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

I'm still working towards achieving profitable trades consistently.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com

A Winning Trade - Goldman Sachs Group Inc. (GS)

Dear fellow options traders :


This week the investors' focus was on the Federal Reserve Meeting, held over 2 days on 20 & 21 Mar 2007.

As expected, on Wednesday, 21 Mar 2007, the Fed voted unanimously to keep its benchmark federal funds rate (a key overnight bank lending rate) unchanged at 5.25 percent but maintained a warning on the risk of inflation. The stock market rallied after the Federal Reserve signaled that the central bank's next move might be a cut in the interest rates.

Goldman Sachs Group Inc. (GS) reported good earnings on 13 March 2007 and gapped about +$2.00 to $204.96. I expected this stock to rally if the Federal Reserve policy makers held rates steady coupled with an optimistic statement of the economy. Thus, I paper traded by purchasing 2 contracts of the Goldman Sachs Group Inc. (GS) Apr 210 Call for $360 each when the stock was trading around $205.00.

Goldman Sachs Group Inc. went up about +$5.60 intra-day on Wednesday, 21 Mar 2007 to close at $210.95 after the Feds announced a possible rate cut.


On 22 Mar 2007, I sold one contract of the Apr 210 Call for $590, gaining a paper profit of $230. I'm still keeping the other contract because next week being the end of a quarter, the funds manager would be stocking up shares which had recently reported good earnings, and Goldman Sachs Group Inc. happened to be one of them. I would most probably sell the remaining contract by end of the month.

If you've managed to find out about the Live Freely! Seminar from my stock options trading 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.

I'm still working towards achieving profitable trades consistently.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai
http://www.myoptionsonline.com