We missed a great earnings trade today on CarMax (KMX, $48.05, down $5.00) as we failed to do a follow-up on a possible put option play.
We have played earnings in the past on CarMax, usually bullish, as we called the run to new highs this year and we like the company’s futures prospects. However, we talked about how the government shutdown might hurt their business for the quarter as the local CarMax in “Our Town” cut back on employee hours back in October.
We had the stock listed in our Earnings section on Sunday night for our Weekly Wrap and with shares pushing 52-week highs we had the perfect setup going into yesterday’s close.
CarMax reported 3Q earnings of $0.47 a share, versus estimates for $0.48 a share. Revenue came in at $2.94 billion and ahead of the $2.89 billion forecast.
The January 50 puts (KMX140118P00050000, $2.75, up $1.90) were going for 85 cents into yesterday’s close and have surged nearly 225% this morning. A 10 contract trade would have cost $850 and could be cashed out at current levels for $2,750. Not bad for less than 24 hours of work, huh?
The December 50 puts (KMX131221P00050000, $1.40, up $1.10) would have been a gambler’s paradise as they went out at 30 cents yesterday and have kissed a high of $2. These gains could have been nearly 700% had the trade maxed out.
The start of 4Q earnings will begin in a few weeks and is setting up to be a Super Bowl season so while we may have missed this one, there will be a TON of opportunities to play ball starting the second week of January.
As far as the market, the bulls are pushing record highs again following sweet GDP (Gross Domestic Product) numbers and we said today has usually been bullish over the past 30 years. The two together have the bulls running as our yearend fluff targets are now coming into play.
We still have 7 trading days left for 2013 but we feel pretty good about ourselves as we said the Dow would trigger 16,000 this year back at the beginning of FEBRUARY. We never waffled on our Price Targets of Dow 16,000; S&P 1,700; Nasdaq 3,800 and Russell 1,025.
Although we have fluff targets for the indexes, and our Price Targets have been exceeded, we don’t mind if we underestimated the power of the bulls as we know of no other newsletter that made these bold predictions. Most of the suit-and-ties pencil-in a 5%-10% move for the market on years they are bullish but that is the lazy way of doing homework as it is the market’s historical returns.
We have already started our homework for 2014 and it has the potential to be one of the best years to trade options. There should be continued highs into January (or longer) but at some point, we could get the mother of all pullbacks and where we will make a ton of money if we are right.
This is why we encourage our subscribers to upgrade their subscriptions during our December special because we want you with us every day all year long.
We have some great action going on inside our Members Area so we have to roll but please take advantage of our end of year special if you can because we only do our promotion once a year. And it also includes our option trading course, How to Trade Options on Momentum Stocks, an $895 value at no charge, if you upgrade to the 1-year membership. The 2014 course is also shipped on our dime to your doorstep and will be delivered in early January.
As we head into the second half of trading, the Dow is up 90 points to 16,269 while the S&P 500 is surging 11 points to 1,821. The Nasdaq is jumping 43 points to 4,101 and the Russell 2000 is higher by a dozen points to 1,137.
Subscribers, hit the Members Area for the updates as we are taking profits on a current trade that is up triple-digits (100%).
We will be back Sunday night with the Weekly Wrap and on Monday morning with the Daily. There is a chance we could have additional Profit Alerts by the close but if you don’t hear from us before the bell, have a great weekend everyone!