OptionPundit

Tag: earning

  • How to Play Google Earnings, Again?

    Google (GOOG) is announcing earnings today after market close. A $500+ stock and famous for it’s move post earnings, it is almost in every “speculators” list to play for the big event.

    I covered GOOG earnings extensively. If you are looking for a play based on detailed analysis based, check out the past trades here.  There were 4 different types of plays and all were the winners.

    So do you want to play again? what is your outlook on how much Google is going to move. If you expect Google to move more than $15-$20, you should not even read further.

    I think it may be range bound when it opens tomorrow. It may move $10-$15 but not very much. Of course I may be wrong and I had been wrong in the past. So what to do? I would like to reduce my risk and hence I am willing to spend a very small sum for my views and I am willing to lose all as there will not be not much time left for Oct expiration.

    Here is how I plan to trade this-

    Buy Oct 520 Put Butterfly and 540 Call Butterfly. This trade can be done for $230 (as of this writing). In order for this trade to make money, Google should be between $512.3 and $527.6; and between $532.26 and $547.7

    Goog Earnings Oct 2009
    Goog Earnings Oct 2009

    So if someone has a $10K portfolio, this will be 2.3% of capital. If you have a large cap portfolio, don’t invest more than a small fraction on it as you may lose 100% of the capital invested on this. Pls do your due diligence before you invest any single $$.  I am personally into this and many other variations for Google earnings.

    The GLD trade was closed for nice profits.

    All the best, Profitable Trading, OP

  • OPNewsletter (Jul’09) +5.2% (Open)

    General Market Move Since opening of OPNewsletter Jul'09 portfolio
    General Market Move Since opening of OPNewsletter Jul'09 portfolio

    4th down week for the markets. It’s interesting to evaluate how underlyings have moved since we started our portfolios. X moved +1% to -23% and moved wildly. GDX moved from +3% to -11%, and all major market indices including S&P 500, DOW and Russell 2000 ended down, ranging from -5.5% to -6.5% (Ref point June 16th). On contrary, OPNewsletter, using 43.3% of capital is up +5.2% x-commissions.

    If you recall mid-June when we started our portfolios, the “green shoots” theory was gaining momentum (maybe still it is, but less so) and markets were making high. These pages on OptionPundit reflect my bearish bias. The problem with bear market is that you may know it is about to happen, but not sure of time. Hence we have to keep OPN portfolio to cater to upside moves as well. The strategy paid off.

    The above results don’t include returns on speculative trades of either VIX or RIMM, POT or Indonesia related Trades.

    I have been saying for sometime now Smiley I shall say it again-
    As I shared earlier, market internals are deteriorating day by day. I don’t know when will the tide turn upside down “big time”..I feel that March lows are about to be tested..if not all, then maybe a significant gains will since then might be reversed. If you have a long stock portfolio, you may want to erect defense lines while the IVs are lower and defense will be cheaper. For stocks, there is no harm in reducing the gains in order to protect and preserve capital. I’ll reinforce what I often say- Making money is not difficult, preserving it is.

    We shall soon be starting Aug portfolio. If you would like to join, pls click here.

    oNext week is an interesting one, as it has GOOG, IBM, HOG and some other great earnings’ play; option expiration is on Friday which sets it up for a highly leveraged opportunistic time. I may share some trade ideas via e-mail alerts to registered members. If you have not signed-up for free membership, you may want to join now.

    Profitable Trading, OP

  • Harley (HOG) Misses, JP Morgan (JPM) Beats

    Harley-Davidson Inc (HOG) said quarterly earnings fell 37 percent, pulled down by costs from its recession-triggered restructuring and a tax change in its home state of Wisconsin but still expecting to meet full-year shipment forecast;  “mildly encouraged” that the rate at which sales declined in the United States, its biggest market, slowed during the quarter.

    The company reported first-quarter net income of $117.3 million, or 50 cents a share, down from $187.6 million, or 79 cents a share, a year earlier. Analysts, on average, expected the company to report a profit of 52 cents a share on sales of $1.30 billion, according to Reuters Estimates

    Well, even though it missed, doesn it matter? no, its shares rose 6.2 percent in premarket trading on Thursday.  My bearish trade is going to nose dive, but thankfully those are May’09 options, so I still have time to convert those into possibly bullish spread or play intra day to reduce loss exposure. This is going to be 2nd consecutive losing trade after CSX.

    On the other hand JP Morgan (JPM) reported better-than-expected first-quarter profit as improved investment banking performance offset increased losses from credit cards and other consumer debt. Most are saying AIG Pay-outs and Mark-to-Market has no major impacts. You may wanna read an interesting article from NY Times for an additional perspective. And oh btw, where is the competition? Isn’t this good time to get rid of regulatory strings; so why shouldn’t I refund TARP funds and make more money?

    Have fun, profitable trading, OP

  • How to Play Alcoa (AA) Earnings?

    Aloca (AA) is set to announce earnings after close today. Wall Street is expecting a fall to -$0.55 to -$0.57 EPS depending upon who do you follow (Zacks, First Call etc). The quarter was not that exciting, hence the expectation are already factored for a very poor quarter. I think the movement will depend on the extent of swing of losses in either direction. My personal bias is that will beat these lowered numbers (probably on ground of higher discounts to liquidate inventory, etc.) . Worth watching though is the Gross/operating Margins.

    Earnings related trades are speculative and hence there is 50/50 chance of being correct. So, How to play this?

    aa-earnings-apr-09Earlier I mentioned about a beautiful strategy to play large moves, called “Backspread” strategy. Here is a Trade Idea-

    While I would like to play upside I also want to protect myself for any negative announcement and hence negative stock reaction. I am planning to open a April 6/7.5 2:3 Call ratio spread i.e. Sell Apr Calls 2X and Buy April 7.5 Calls 3X. This will yield about $1.50 credit. The Max I can lose by April expiration is $150. My break even points are $6.73 and $9 by April expiration.  As long as AA moves beyond this range, this trade will be able to make money.

    What’s the catch– Tomorrow morning the IV will drop like a stone as the news will be out and stock will move. The worse case, the IV drops and stock doesn’t move. For this trade to make money, stock has to move.

    There are other ways to book profits. For instance, if AA drops heavily then close the 6 calls buy buying it back cheaper and sell the 7.5calls when AA bounce a little upwards. But this all requires intra day trading skills/maneuvering.

    Don’t try this if a) you are not willing to lose and b) you don’t how to profit from it even if it goes against your plan.

    Disclaimer– As of this writing I own this spread. I may change my position anytime without notice.

    Profitable Trading, OP

  • The Week Ahead

    A very important week is ahead that might set tone for rest of the quarter. Fed Chief Bernanke will be announcing on Tuesday via FOMC announcement that he has decided to keep interest rates same (my guess) as US economy can’t handle any hike at the moment. Rate cut it out of question.

    Though a lot of companies are going to announce earnings this week, here are few name that might see some significant movements- OTTR , OEH, HURN, BIO, NILE, PCLN, SNCR, WFMI, FWLT, KALU, AIG, COGT, CROX, DECK, HANS, INT

    PIMCO chief Bill Gorss says “This deflating supply of credit is in effect the financial market’s version of Mad Cow disease.” Read more. On the other hand, John Hussman thinks that once market recognizes that we are in recession, we may observe abrupt losses-

    The stock market certainly has experienced weakness year-to-date, but one of the important features of this weakness is that it has not been tied to any broad recognition of ongoing recession. Rather, the predominant source of weakness has been concern about financials and the mortgage market.

    This suggests that there remains an important layer of risk to peel away: presently, the greatest threat to the stock market is not the potential for further mortgage writedowns, but the risk that enough evidence will emerge to remove the lingering doubt about an ongoing recession. Once an ongoing (and in my view, probably deepening) recession becomes broadly recognized, we may observe abrupt losses as the likelihood of more sustained earnings disappointments and much broader default risk becomes reflected in one fell swoop.

    Whatever your perspective maybe, play it cautious. No single direction is a clear winner except that bears so far had upper hand. Whether it is a correction in the on-going long term bull market or it is a primary bear market, that still remains to be seen. I have shared my thoughts earlier and I am still holding on to those levels as primary indicator to tell whether or not tide has turned. At the same time, I would encourage my readers to read Adam’s perspective about bottom calling.

    Read this if you are looking for understanding impact of high IV on options’s greeks. OTB has complied some good lessons on options. If you benefit from the posts, don’t forget to support the blog via visiting sponsors.

    And of course, Olympics starts this week in Beijing China. A lot is on stake, national pride(s), sporting companies, travel companies and many china tickers are counting on business from Olympics. If those doesn’t materialize, we’ll see a show down on the likes of NIke (NKE). Stay tuned.

    Trade carefully, Trade profitably, OP