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Friday, January 30th, 2009
Roche threw us a curveball this morning and took its bid for Genentech (DNA, $80.95, down $3.14) directly to the shareholders. The company is now offering about $42 billion, or $86.50 a share for Genentech which is $2.50 less than the offer it made last July. Hogwash.
Roche’s attempt to get Genentech at a lower bid is another slap in the face to its shareholders and although Genentech has not made any comments, this camp says Genentech again holds out for more. One top 10 Genentech shareholder is already rebuffing Roche’s new bid and I don’t believe other shareholders will tender the offer either.
From the head brass at Roche: “We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement. We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares.”
Fair price? Geez. If Roche offered $89 back in July, why then, the lower offer? Genentech expects to report results in mid-April for its Avastin colon cancer trial, in addition to pending FDA decisions to expand the drug’s use. Roche is trying to get the rest of the company it does not own before that data is released.
We will have to see how this plays out but continue to hold the the February 95 calls (DWNBS, $0.05, down $0.15) and the March 95 calls (DWNCS, $0.25, down $0.35). These positions got hammered today as a result of the lower bid.
I’ll be back over the weekend to provide an update in the Weekly Wrap.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Genentech, Roche
Posted in Option Trades | No Comments »
Thursday, January 29th, 2009
After a four-day winning streak, the market was due for a pause as all three major indexes traded lower. A couple of crummy economic reports really set the tone today and the Dow didn’t even come close to sniffing positive territory. Jobs and Housing were the culprits.
The number of people that receive unemployment benefits continued to soar and is rapidly approaching 5 million. Another 200,000 and we are there. This is the highest level on record going back to the 60’s. Home sales plunged 15% to an adjusted annual rate of 331,000 in December. Although there was a report earlier in the week that said existing home sales rose last month, most were foreclosed sales. Toss in another round of layoffs from some of the majors and it was all said and done for the market before.
As a result, the Dow lost 226 points, or 2.7%, to close at 8,149. The S&P 500 dropped 29 points, or 3.3%, to finish at 845, while the Nasdaq gave up a Grant (-50), or 3.2%, and settled at 1,507.
The good news is we still made money, folks.
International Business Machines (IBM, $92.51, down $2.31) gave back most of its gains from Wednesday but were were able to close the the February 95 calls (IBMBS, $1.75, down $0.85) for over a 100% return. Our exit was $2.25 and we got into the position on Monday for $1.00. I provided an update before the market opened this morning because it appeared as though IBM would be hurt by the overall market sentiment.
I also gave an update on Goldman Sachs (GS, $82.72, down $4.98) and JPMorgan (JPM, $25.43, down $2.23) last night as it appeared that they would only be good for a one day pop. We did get the classic “buy the rumor, sell the news” today and we were stopped out of these positions as well.
The Goldman Sachs February 85 calls (GSBQ, $4.95, down $2.90) hit our stop of $6.50 which returned 35% from an entry price of $4.75. The JPMorgan February 26 calls (JSABI, $1.85, down $1.35) hit our stop of $2.75 and continued lower. The trade made 10% and I thought the banks stocks would be good for another day but the approval of the stimulus package took the wind right out of the sails.
One trade that is still working is Netflix (NFLX, $36.88, up $0.72). The stock managed a 2% gain in a lousy market and hit a high of $37.90. On Tuesday, I said the March 35 calls (QNQCG, $4.00, up $0.80) had a good chance of making it in-the-money when the stock was at $34.40. The options were going for $2.60 at the time and hit a high of $4.50 today. That’s a 50% profit. Get out at $3.50 if the calls start to fall.
The March 40 calls (QNQCH, $1.80, up $0.65) were trading for 90 cents and have doubled. The calls hit a high of $2.00 and if you have already sold these calls or have taken some off the table, good job. Otherwise, set stops at $1.50.
What was interesting today is that there was call buying in Netflix all the way out in June. The March 50 calls (QNQCJ, $0.30, up $0.15) traded over over 400 contracts while the June 45 calls (QNQFI, $2.20, up $0.65) traded over 1,000 contracts.
If these calls continue higher you can move the stops up or sell some and let the rest ride..
Rick Rouse
Rick@OptionsMentoring.com
**** Once again, send me an email if you would like to receive the Weekly Wrap. I’ve got an exciting issue coming out this weekend on getting started in option trading. Also, I’ll cover some of the trades we did in January and what to look forward to in February. If you are new to the blog or to the OptionsMentoring.com website, you should take advantage of this free offer to get some good information.
Tags: Goldman Sachs, International Business Machines, JPMorgan, Netflix
Posted in Option Trades | No Comments »
Thursday, January 29th, 2009
Yesterday it appeared International Business Machines (IBM, $94.82, up $3.16) was not going to join the market’s party as the stock was only up by a few nickles. The Dow was enjoying a triple-digit gain, yet IBM was stuck in neutral. Turns out, IBM was the party on Wednesday.
The stock started to rally after the President urged for the passage of an $820 billion stimulus package (which got approved last night) but what you may not know is that IBM’s CEO, Sam Palmisano, was called upon right before Obama spoke. In all, there were numerous business leaders there for the stimulus meeting but IBM could stand to benefit the most from an infrastructure standpoint.
The stock opened at $92.70, filled in some gaps, and was ready to test the $93 resistance level. I had mentioned this on Sunday night and again on Monday morning and said if we could clear this level, we were off to the races.
The February 95 calls (IBMBS, $2.60, up $1.20) could have been picked up for $1.00 on Monday morning and they are now up a stunning 160% from those entry levels. Even if you got in late and paid $1.25 for the calls, you have doubled your money.
Yeap. You’re next question is where is the stock headed? Well, first let’s put a stop of $2.25 OR if the stock falls below $93.50, sell the position. IBM made a steep drop in late September from $120 to under $90 in two weeks. So really, there is no resistance until $115-$120 but it doesn’t mean we are in blue-skies territory either.
I’d be happy with a run to $100 but IBM might do some consolidating here at these levels. Either way, the trade is a huge winner so protect your profits.
Rick Rouse
Rick@OptionsMentoring.com
Tags: International Business Machines, resistance
Posted in Option Trades | No Comments »
Wednesday, January 28th, 2009
Goldman Sachs (GS, $87.70, up $9.44) and JPMorgan (JPM, $27.66, up $2.60) added to their gains in late-afternoon trading. Both stocks continued to surge after the update in today’s blog and hopefully that will carry over into Thursday.
However, futures are trading lower despite the $820 billion stimulus package that was approved. As I type, the Dow futures are off by 37 points, while the Nasdaq futures are lower by 7. The classic “buy the rumor, sell the news” could happen when the opening bell rings which means these trades will have to watched as soon as trading begins.
The Goldman Sachs February 85 calls (GSBQ, $7.85, up $5.00) traded as high as $8.70 which is over a 80% gain from a $4.75 entry price. If the call options go below $6.50 or so, close the position.
The JPMorgan February 26 calls (JSABI, $3.20, up $1.50) opened at $2.50 and traded as low as $2.35. Stops could be set at $2.75.
Some of you may have closed the trades yesterday but if you didn’t, hopefully you won’t get whipsawed out of them without making a profit. A couple of things to take away from this trade. First, it was a risky trade with inflated option premiums and second, don’t fall in love with the position.
We are looking for quick trades that work and this was a rare occasion where the market showed its hand and gave plenty of clues on what it was betting on. Kinda like poker. We won a pot and we fold on other trades until we see something we like…
Rick Rouse
Rick@OptionsMentoring.com
Tags: Goldman Sachs, JPMorgan
Posted in Option Trades | No Comments »
Wednesday, January 28th, 2009
The market is trading higher, led by financials, on renewed optimism the new Obama administration is moving quickly to stabilize the banking sector. Goldman Sachs (GS, $86.00, up $7.74) and JPMorgan (JPM, $27.26, up $2.20) are having a monster day as both stocks are up nearly 10%. The Dow is up triple-digits while the Nasdaq and S&P 500 are up 3% and 2.5%, respectively.
More importantly, the Goldman Sachs February 85 calls (GSBQ, $7.00, up $4.15) are up 140% from yesterday’s closing price. Yeap, a 10% move in a stock can get you a 100% return on the right option. We didn’t get that much but we are showing gains. The calls opened at $5.35 but were trading for $4.55 twenty minutes later. I have talked about not buying the hype at the open in the past and hopefully you remembered this if you got into the trade. Either way, if you got in at the open, you’re up 30+%. If you got in for under $5, then your gains are 50%.
JPMorgan opened at $27.19 and fell back to $26.34 before resuming its uptrend. The February 26 calls (JSABI, $3.00, up $1.30) opened at $2.50 and traded as low as $2.35. At $2.50, your profit is 20%.
I also mentioned Citigroup (C, $4.20, up $0.65) and the February 4 calls (CBW, $0.68, up $0.30) which are trading where they opened up at. I didn’t like this one as much but I realize some of our readers like playing the cheaper options. They have traded as high as 75 cents but the stock needs to get near $5 to make some good money with this one.
Now, I can’t tell you where we go from here but as I have commented on many times in the past, these are sweet profits in a volatile market. If any mutual fund manager could post a 20% gain for their clients, they would be crowned the next Peter Lynch on Wall Street. We make that in a day. So if you invested a $1,000 and made $200, think about that for a minute. Even better, if you got in the Goldman trade, your $1,000 has made you $500 in three hours. That’s where we are.
All of these options could continue higher but remember we’re gonna get a statement from the Fed in a little bit. Wall Street will be watching for signals of any “nonconventional methods” of fighting the credit crisis after the Fed ends its scheduled two-day meeting.
The last hour of trading could be a doozy so protect your profits if it looks like the tide is turning.
Rick Rouse
Rick@OptionsMentoring.com
**** Don’t forget to send me an email if you would like to receive the Weekly Wrap. I’ve got an exciting issue coming out this weekend on getting started in option trading. If you are new to the blog or to the OptionsMentoring.com website, you should take advantage of this free offer to get some good information.
Tags: Citigroup, Goldman Sachs, JPMorgan
Posted in Option Trades | No Comments »
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