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Thursday, July 31st, 2008
Research In Motion (RIMM, $122.82, up $3.60) was just what the doctor ordered. The stock opened Thursday’s trading session at $119.69 and the September 140 calls (RULIH, $2.75, up $0.90) opened at $1.85. The opening allowed us to get in the calls immediately as we had a limit order to buy them up to $2.00-$2.10.
RIMM was strong all day despite a nasty day for the market. The Dow has a miserable day, falling 200 points to close at 11,378. RIMM’s strength could be contributed to the Nasdaq which posted only a four point loss and finished at 2,325.
Another contributing factor was the surprise earnings report out of Motorola (MOT, $8.64, up $0.96). The company posted a profit of $4 million in income which amounted to break-even on a per-share basis. The Street had expected the company to report a loss of $66 million, or $0.03 a share.
Friday will be a HUGE day for the market as the unemployment numbers roll in before the market opens. If we can get a decent report, the RIMM call options and the other call positions we have should continue to do well. The RIMM trade is already up 50% and we can go ahead and set an early stop of $2.00 which gives us at least an 8% profit should the stock retreat.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Research In Motion September call options
Posted in Hot Stocks | No Comments »
Thursday, July 31st, 2008
Talk about waking up to good news. There’s no better feeling as an option trader then to start you day off by learning that one of your option plays is up 700% for the day. No that is not a typo. But that is exactly what is happening today as word hit Wall Street that Bristol-Myers Squibb (BMY, $21.17, down $0.34) has made a $4.9 billion bid to purchase ImClone Systems (IMCL, $63.85, up $17.41).
The proposed deal is worth $60 a share and represents about a 30% premium from where Imclone last closed. We made a Biotech Watch List Sunday night and I updated a few of them last night. However, today’s news is so much better. If you’ll notice, Imclone’s stock price is above the $60 offer which could indicate an even higher bid may be needed.
Bristol-Myers Squibb already owns a 17% stake in ImClone and the two companies have been partners since September 2001 in developing Erbitux. Bristol-Myers has felt an “urgency” to do something after its industry-leading cancer treatment Taxol was overtaken by numerous generics brands. The pitch for ImClone was a way for Bristol-Myers to beef up its pipeline not only with Erbitux but other exciting drugs as well. Erbitux is amphibious in way because it treats “land or water”. The drug is approved for treating advanced colorectal cancer and head and neck cancers. And more uses for the drug could be on the way.
And wouldn’t you know it. Our buddy Carl Icahn just made a fortune on this news. Gotta give the dude credit though. He has been investing in ImClone since 1999 and owns nearly 14% of the company’s stock. He took over the board after the infamous securities scandal that I told you about Sunday night involving Martha Stewart.
But here’s the best part of this story. I told you the August 45 calls (QCIHI, $18.87, up $16.52) would be worth $5.00 if ImClone can hit $50 by August 15. I profiled these calls at $2.40 and on Monday they were actually cheaper as ImClone’s stock fell $1.27 by the end of the day. A 10 contract investment of about $2,500 is now worth a stunning $18,500 in just four days. Wow. Now you can see why the option market is one of the single biggest ways to make money in this world. Of course I had no way of knowing that a buyout offer was in the cards for ImClone but the action in the Biotech sector has been noticable.
Another company I talked about was Amylin Pharmaceuticals (AMLN, $31.07, up $3.59) which I said could be headed back above $30 despite reporting a wider-than-expected quarterly loss. Amylin is up on the ImClone news obviously. This has helped the August 30 calls (AQMHF, $2.00, up $1.50) which were profiled at $1.35. The calls were taking a big hit and looked as though they may expire worthless but today’s move took care of that. I would sell the entire position today and book profits.
As far as ImClone, it should be easy to manage stops from here. We can hold out for a higher premium but set stops at $16.00. The calls have a $15 premium built-in based on the buyout offer of $60 and they expire in a couple of weeks. Either way, I’d say we are in good shape.
Rick Rouse
Rick@OptionsMentoring.com
Tags: ImClone Systems Gets Buyout Offer
Posted in Hot Stocks, Sectors | No Comments »
Thursday, July 31st, 2008
It’s been a month since we’ve really looked at Research In Motion (RIMM, $119.22, up $3.16) but it looks as though the stock could be headed on the way back up. The stock got hammered after the company missed Wall Street’s estimates by a penny but after testing the $100 level, traders seem to be warming up to the company again.
The sell-off in RIMM may have been a little too much but let’s step back and review what happened. When the company missed earnings, yeah, they missed by a penny, 84 cents versus expectations of 85 cents. Revenue was off $30 million, $2.24 billion versus $2.27 billion. And they lowered their outlook. The number that was really “overlooked” by Wall Street was that revenues grew 20% and their earnings miss was due to slightly higher expenses and a slight decline in gross margins (-0.4%). That slight “point four” decline is from a gross margin of 51.8%. Not too many companies out there can claim gross margins of 50%.
We did a strangle trade on RIMM before they announced earnings. I had factored in a huge move in the stock price but was unsure of the direction. The strangle trade provided us a safety net in either direction but the move in the stock had to be 15%-20%. Which is exactly what we got when the stock dropped 20 bucks after the announcement. The trade was good for a 10% return and it was only a one-day gig.
What would have happened if RIMM had exceeded expectations? The stock was in the $140′s before the earnings miss and if RIMM would have beat expectations then maybe it would have traded higher. There were a lot of negatives Wall Street gave the company with their earnings but when you step back and look at the big picture, now may be the best time to get into a trade.
The company has a slew of new devices coming to the market and one of them is right around the corner. When RIMM announced earnings it also said at the time that the BlackBerry Bold would be delayed from late July to early August. Well, August will be here Friday. Other smartphones coming to market are the Kickstart and the Thunder. The Thunder is expected to give Apple’s (AAPL, $159.88, up $2.80) iPhone a run for its money.
The bulls seem to be rallying the troops for another run to $150 ahead of the release of these products. The good thing here is there will not be an earnings announcement anytime soon. The only news that will be coming out of the company should be good news about their upcoming products. I say “should be” because you always have to prepare for anything.
I’m not recommending a strangle trade this time around, instead I’m going with the September 140 calls (RULIH, $1.80, up $0.53). If by chance RIMM opens higher this morning, wait 30 minutes after the opening bell to go long. I would buy them up to $2.00-$2.10. The August option contracts expire in 16 days so this is why I’m going into September. We will target the $3.00 area as our first exit point but we have to get there first. I’m going to set a “mental” stop loss at $1.00 for RIMM due to the volatility but its not a hard stop loss. Let’s give the trade time to develope and go from there.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Blackberry Bold, Kickstart smartphone, Research In Motion new products, Thunder smartphone
Posted in Hot Stocks | No Comments »
Wednesday, July 30th, 2008
We were stopped out of the Johnson & Johnson (JNJ, $68.08, down $0.40) August 65 calls (JNJHM, $3.20, down $0.30) at $3.80 on Tuesday. J&J has failed to rally with the market but the calls were profiled at $2.30 so our return was 65%.
Biogen Idec (BIIB, $71.27, up $0.77) has traded higher the past two days and has pushed through $70. The August 70 calls (IHDHN, $2.85, up $0.45) are now in-the-money by $1.27 and they were profiled at $2.30. As you can see, there is some time premium still built into the calls but let’s go ahead and set stops at $2.50 which gives us about a 10% gain should the stock stall.
Qualcomm (QCOM, $55.64, up $0.72) set a new 52-week high on Wednesday. After starting the week lower, Qualcomm has also put in a solid two days. The October 50 calls (AAOJJ, $7.15, up $0.35) are now up a whopping 250% from an entry price of $2.05 well in-the-money. Let’s set stops at $6.15 which guarantees a 200% profit.
Rick Rouse
Rick@Optionsmentoring.com
Tags: Biogen Idec/ Johnson & Johnson/ Qualcomm Updates
Posted in Hot Stocks | No Comments »
Wednesday, July 30th, 2008
Walt Disney (DIS, $31.27, up $0.35) reports earnings after the closing bell today and all signs are pointing towards a good quarter. Disney’s profit jumped 18% to $1.1 billion, or $0.58 a share when they reported last time out. This time around Wall Street is expecting a profit of $0.61 a share on revenue of $9.1 billion for the quarter.
Disney has a solid film and broadcasting division producing such hits as National Treasure: Book of Secrets, Enchanted and its Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour. The studio entertainment division saw its revenue jump 61% to $377 million with the success of these films and analysts expect growth to continue.
The company also owns theme parks, ABC television, ESPN, and radio stations, which should also contribute to the bottom line. Options traders are targeting the August 32.50 calls (DISHZ, $0.60, up $0.15) and the August 30 puts (DISTF, $0.60, down $0.15). Volume in the puts is nearly double the action in the calls as 13,000 contracts have traded thus far.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Walt Disney Earnings Preview
Posted in Earnings | No Comments »
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