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Friday, June 27th, 2008
Wow. Talk about a beating. Research In Motion (RIMM, $123.46, down $18.88) got one yesterday, falling 13%, after the market digested its earnings report. The stock peaked as high as $148 just a week ago, and has now fallen to its lowest level in two months. The stock was down another $1.26 in after-hours trading to $122.00.
Yesterday was a bad day for RIMM and only time will tell if current support will hold at the $120 level. I mentioned on Wednesday that the stage was set for a big, big move either way and we got just that. If you played a strangle option trade with the two options I mentioned then you now have a decent profit. The July 130 puts (RULSV, $9.85, up $5.93) were the big winner as they easily more than doubled from an entry price of $3.90.
The July 150 calls (RULGJ, $0.40, down $5.00) fell over 90% but here is the beauty of this trade once again. The entry price for both contracts came in around $9.30, $3.90 for the puts and $5.40 for the calls. The puts are worth $9.85 and the calls are worth $0.40 so the value of the two is $10.35. This gives us nearly a 10% profit in one day. Ten contracts would have made you over $1,000 in one day.
With RIMM trading lower in after-hours, here’s the plan. Since the puts are now deep in-the-money, they will move dollar for dollar if RIMM keeps going lower. We can close the puts today and bank those profits which would guarantee at least 10%. We would keep the call options open since they are nearly worthless but have the chance to rebound if RIMM can make a furious comeback over the next few weeks. We have created a risk free opportunity to make even more money if RIMM rebounds. Even if these calls expire worthless a 10% gain is a guarantee. That might not sound like much but if you can make 10% a day or even in a week then you are well ahead of the game. I’m not sure where RIMM will open this morning but let’s hope it continues lower then hope for a big rally by July 18 which is when the July options expire. [Note: Apple (AAPL, $168.26, down $9.13) fell 5% in sympathy yesterday]
Rick Rouse
Rick@OptionsMentoring.com
Tags: Research In Motion strangle trade
Posted in Company Commentary | No Comments »
Thursday, June 26th, 2008
It was a nasty day for the market as all three major indexes took a major blow by falling an average of 3%. A wave of bad news hit Wall Street like a tsunami as oil topped the $140 level and could ultimately be the straw that breaks the market’s back. The Dow lost a whopping 358 points to finish at 11,453. The Nasdaq fell nearly 80 points and closed at 2,321. The S&P skidded 38 points and ended the session at 1,283.
Three weeks ago I mentioned if the Dow fell below 12,000 it could lead to a test of 11,750 and if that was broken, we could fall even further. Here we are. I said the S&P 500 would need to fall to 1,325 then 1,275 for the bears to start coming out in force. Here they are on the doorstep. For the Nasdaq I mentioned 2,375 was support followed by 2,275. As you can see, the Nasdaq could be a train wreck waiting to happen.
If you are a regular reader of the blog, you will know that I’ve been bearish for quite some time. There are a few stocks and sectors that have done well over the past few months and it has clearly been a task to find stocks that are going up when everything is sinking. However, people are making money by being short the market. There aren’t many stocks or sectors that look good right now to go long now, except maybe gold, but there will be.
A lot of stocks have been punished to the point to where they look not cheap but “dirt” cheap. There will come a time when it will be worthwhile to start thinking about going long and LEAP call options could provide us with an excellent chance of making some big money. But not yet. July will be a pivitol month for the market and you can bet there will be plenty of fireworks.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Market Analysis
Posted in Market Analysis | No Comments »
Thursday, June 26th, 2008
General Motors (GM, $11.46, down $1.35) is at a 50-year low. Yes, that’s right, GM is at multi-decade lows after Goldman Sachs (GS, $178.97, down $4.68) downgraded the stock to a “conviction sell” saying the company may have to raise capital to shore up its balance sheet.
The stock is down 10% and got as low as $11.21. GM has lost a whopping 75% from its 52-week high of $43.20. Goldman went on to say that the auto market conditions are likely to keep deteriorating and that GM is burning through its cash. If GM needs to raise cash, it would most likley cut the company’s dividend which currently yields 7.6%.
The auto makers are in a world of hurt and I have been mentioning them a lot lately, especially Ford Motor (F, $5.04, down $0.20). The July 6 puts (FSI, $1.08, up $0.24) were trading for $0.47 last Friday when I mentioned if Ford fell below $5 within the next month, these puts will be worth at least $1.00. Bingo.
We had set our stop at $0.70 and you should now raise the stop to $0.90. Ford could continue lower if “capitulation” sets in. I love using that word. Capitulation is when investors “give up” any previous gains in a stock price or sell it for a loss in an effort to get out of it and into something less risky. True capitulation involves extremely high volume and sharp declines and although that’s not quite the case with Ford, it could be happening in the market right now.
It is said that after capitulation selling, there are great bargains to be had. The belief is that investors who wanted to get out of the market or a stock have sold and prices that, theoretically, will reverse and bounce off their lows. In other words, some market vets believe that true capitulation is the sign of a bottom. We may not be at a capitulation point just yet but there is “blood in the streets”.
Rick Rouse
Rick@OptionsMentoring.com
Tags: capitulation, Ford July puts
Posted in Company Commentary | No Comments »
Wednesday, June 25th, 2008
It’s hard to please Wall Street. In a much anticipated earnings announcement, Research In Motion (RIMM, $142.34, up $1.86) failed to impress analysts and the stock is being taken out to the wood shed in after-hours trading. Shares have fallen $12.40, or 9%, as the stock has dipped below the $130 mark. Ouch!
The company announced incredible earnings but still fell short of expectations. RIMM reported revenue of $2.24 billion, up nearly 20% from $1.88 billion in the previous quarter and doubling the $1.08 billion RIMM reported in the same quarter of last year. Wall Street had penciled in revenues of $2.27 billion. Strike One.
RIMM earned $482.5 million, or $0.84 cents per share versus $223.2 million, or $0.39, compared to the same period a year earlier. Analysts were expecting slightly higher earnings of $0.85 a share. Strike Two.
The big pitch RIMM wiffed on was its outlook. For the current quarter, RIMM predicted revenue of $2.55-$2.65 billion and earnings of $0.84-$0.89 a share. Wall Street was expecting revenue of $2.43 billion but earnings of $0.90 for the quarter. I had mentioned RIMM should beat earnings but a spike in expenses and the decline in gross margins caused the company to “miss” expectations. Gross margin for the quarter fell to 50.7% from 51.8%, versus the same quarter a year ago. News that the BlackBerry Bold is likely to be delayed from late July to early August didn’t help matters either. Strike Three.
It’s too bad RIMM is selling off in after-hours because the stock could have a big impact on what the market does on Thursday, especially the Nasdaq. The market has been trending lower and it could only be a matter of time before the other shoe falls. The bulls are hungry for good news so that a trend reversal can take place. But the bears have been in control since May. As the saying goes “the trend is your friend”. Right now, the trend remains lower.
The two options I mentioned this morning, the July 150 calls (RULGJ, $5.45, unchanged) and the July 130 puts (RULSV, $3.92, down $0.93), are going to see a big change in their price when the market opens in the morning. Together, these two options would have been the perfect strangle trade for a gain in the 10%-20% range if things hold up.
Rick Rouse
Rick@OptionsMentoring.com
Tags: after-hour trading, RIMM disappoints
Posted in Earnings | No Comments »
Wednesday, June 25th, 2008
Research In Motion (RIMM, $139.00, down $1.48) is trading slightly lower ahead of its 1Q earnings release after the bell today. The company is expected to post earnings of $0.85 a share, more than double the profits of $0.39 versus last year’s quarterly comparisons. Wall Street is expecting sales to come in around $2.3 billion.
RIMM hit an all-time high of $148 last week and is down about $10 since. The stock has always been a big mover following an earnings announcement but this time could be even bigger. The stage is set for either a huge rally or a big sell-off. The bet from this camp says RIMM easily beats estimates today.
Option investors are placing huge bets on the BlackBerry maker but the key will be what the company says about its growth. There is plenty of room for RIMM to grow as the company only has a 1% share of the cell phone market. The wild card will be a slowdown in IT spending by businesses but corporations seem to be adapting the new smart phones because of their capabilities. Any hints of a slowdown could send the stock significantly lower.
I think the stars are aligned just right for RIMM and I’d almost be willing to take a chance on the July 150 calls (RULGJ, $4.45, down $1.05) which are down 20% today. They could represent a good entry point for a one-day all-or-nothing trade. However, it really is hard to say where RIMM goes from here. The July 130 puts (RULSV, $5.00, up $0.15) can be used as a hedge in case RIMM disappoints Wall Street.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Research in Motion earnings release
Posted in Earnings, Hot Stocks | No Comments »
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Research In Motion Update
Friday, June 27th, 2008
Wow. Talk about a beating. Research In Motion (RIMM, $123.46, down $18.88) got one yesterday, falling 13%, after the market digested its earnings report. The stock peaked as high as $148 just a week ago, and has now fallen to its lowest level in two months. The stock was down another $1.26 in after-hours trading to $122.00.
Yesterday was a bad day for RIMM and only time will tell if current support will hold at the $120 level. I mentioned on Wednesday that the stage was set for a big, big move either way and we got just that. If you played a strangle option trade with the two options I mentioned then you now have a decent profit. The July 130 puts (RULSV, $9.85, up $5.93) were the big winner as they easily more than doubled from an entry price of $3.90.
The July 150 calls (RULGJ, $0.40, down $5.00) fell over 90% but here is the beauty of this trade once again. The entry price for both contracts came in around $9.30, $3.90 for the puts and $5.40 for the calls. The puts are worth $9.85 and the calls are worth $0.40 so the value of the two is $10.35. This gives us nearly a 10% profit in one day. Ten contracts would have made you over $1,000 in one day.
With RIMM trading lower in after-hours, here’s the plan. Since the puts are now deep in-the-money, they will move dollar for dollar if RIMM keeps going lower. We can close the puts today and bank those profits which would guarantee at least 10%. We would keep the call options open since they are nearly worthless but have the chance to rebound if RIMM can make a furious comeback over the next few weeks. We have created a risk free opportunity to make even more money if RIMM rebounds. Even if these calls expire worthless a 10% gain is a guarantee. That might not sound like much but if you can make 10% a day or even in a week then you are well ahead of the game. I’m not sure where RIMM will open this morning but let’s hope it continues lower then hope for a big rally by July 18 which is when the July options expire. [Note: Apple (AAPL, $168.26, down $9.13) fell 5% in sympathy yesterday]
Rick Rouse
Rick@OptionsMentoring.com
Tags: Research In Motion strangle trade
Posted in Company Commentary | No Comments »