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Garmin (GRMN) Surges to New Highs

1:25pm (EST) 

We mentioned there were nearly 50 charts we looked at and dissected for possible earnings trades this week and we were able to navigate the list down to 25 by Monday’s open.  We did extended chart work on nearly a dozen stocks and one of the ones we liked best was Garmin (GRMN, $51.69, up $4.52).

GRMN21714

We have followed the company for years and have been bearish in the past but the company’s prior quarter indicated business was turning around.  The symmetrical triangle shown above was indicating a huge move in the stock based on earnings for the recently ended quarter and Garmin needed a good follow through.

Needless to say, with shares up 10% and pushing fresh 52-week peaks, Garmin nailed it.  The suit-and-ties were expecting a profit of $0.62 a share on revenues of $713 million.  They were blown away when Garmin announced numbers of $0.76 a share on sales of nearly $760 million.

Despite our past bearishness, we knew the company had a good chance of beating estimates as most of Garmin’s sales are now coming from wearables.  However, it is hard to trust a company during a turnaround so we didn’t want to commit money on a long only trade.

With the February options expiring this Friday, it was also a little risky to use these near-term options as a move of less than 5% would have crushed the premiums.

Shares were just north of $47 going into Tuesday’s close and we knew a 10% swing would push shares near $52 or they would tumble to $42 following the earnings announcement.

Knowing this information is crucial going into an earnings trade because it helps you define the trade.  Knowing WHERE a stock COULD be headed and the time frame are the two most important factors in setting up an option trade.

We were “chicken” to do a directional play on the stock by buying a call or put option but by buying one of each, we could have doubled our money in less than 24 hours.

The Garmin February 50 calls (GRMN140222C00050000, $1.84, up $1.37) were going for 47 cents into yesterday’s close and have zoomed 291% at current levels.  They have traded to a high of $2.88 after opening at $2.61 as shares have traded to a high of $52.72.  This would have been a gain of 450%-500% if the options were closed into this morning’s open.

GRMN21914

The Garmin February 43 puts (GRMN140222P00043000, $0.02, down $0.25) were priced at 27 cents ahead of Tuesday’s close and have been punished as they are down 93%.

GRMNb21914

The cost of the trade would have been $0.75, or $750, for every call AND put option purchased.  A 10-contract trade using the aforementioned options would have cost $750 and is valued at $1.86, or $1.860, at current levels despite the put options tanking.  This is a 143% return at current levels but the trade could have been maxed out for a return of over 450% at the open.

Of course, if shares moved less than 5%, both of these options would have seen their premiums deflate and the trade could have been a big loser.

For those of you that have received our options trading course, How to Trade Options on Momentum Stocks, we talk about strangle options trades starting on page 24 of the manual.

For possible trades on companies reporting after the close today include: Avis Budget Group (CAR), Crocs (CROX), Denny’s (DENN), HomeAway (AWAY), Jack in the Box (JACK), LifeLock (LOCK), Millennial Media (MM), Rubicon Technology (RBCN), Safeway (SWY), Tesla Motors (TSLA), and Veeco Instruments (VECO).

Out of the bunch, we believe Safeway and Tesla will make moves in excess of 10% based on their earnings numbers.

You can also look at these stocks ahead of today’s close as they will be reporting earnings before Thursday’ open:  Alkermes (ALKS), Cyberonics (CYBX), Exact Sciences (EXAS), Sonus Networks (SONS), Toro (TTC), and Walter Industries (WLT).

The Fed minutes are due out shortly and after a green open the market is seeing red ahead of the event.  As much as Janet Yellen talked last week there should be no surprises.  Perhaps the market is a little nervous ahead of the news and could return to pushing resistance afterwards if all is good.  If not, the bears might take a stab at support.

The Dow is currently down 9 points to 16,120 while the S&P 500 is off by 2 points to 1,838.  The Nasdaq is lower by 15 points to 4,257 and the Russell 2000 is declining 5 points to 1,156.

Subscribers, hit the Members Area for the latest updates as we have placed stop targets on some of our positions that are showing profits.

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    “Rick – Wow what a day! I got in at the Dendreon calls at $2.25. Thanks to for your advice. I appreciate that. This company has a lock on this type of therapy and no one else in the world is close. Kind of reminds me of the type of companies that Peter Lynch and Warren Buffet suggest that investments be made in. Companies that can build a moat around their business model, that allows them to charge a premium for their product or service. In other words - a monopoly.” GREG

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    “Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.” GARETT

    “Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.” TERENCE

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    Rick, new member...Studied all current trades, did some chart work,picked ZNGA, PEP, MGM...Sold on Feb. 2 for $3600.00 profit...Cost for 1-year membership to your newsletter was less than $1000.00..All I have to say..Thank you. John H –

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    Rick, I purchased 10 contracts of the Nike March 85 puts Thursday afternoon for $2.00. Thing is, I was upset because the puts went down to $1.60 or so before the market closed. Well, needless to say Nike didn’t impress Wall Street and when I turned on the computer this morning the puts were worth $7.10! Sold them for a $5,100 profit!. Thanks again, you are the MAN. Chuck J-

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    Hi Rick,

    I will start off with a thank you for your time and dedication to all
    the research you and your team commit yourself to. This is not me just being excited about the profits I have accumulated aka (bank) ! You have helped me get back to the passion I had of researching stocks/options. Keith N-

    Hi Rick,

    I want to share my great results on GMCR. Based on your comments on February 15th, I bought 20 options at $0.28. They closed today at $7.00, which is a 2,300% gain. My $560 dollars turned into $14,000 in less than a month. In decades of trading, this is my single best trade ever. Thank you! By the way, the Dow was down 228 points today and I could care less. What a great trade. It proves the amazing power of options. I am so grateful for your service, which calls it straight all the time, your options trading manual, and most of all, your amazing skill
    at finding winning trades. I have attached a copy of the trade from
    my brokerage screen.

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    Rick,

    Great call on Fosl I bought the may 120 puts for 3.70 yesterday morning just sold for $32.00 today
    Keep up the great work
    Thank you, Henri

    Rick –

    I bought 10 Deckers Outdoor (DECK) May 55 puts at $0.50 on 4/26/12 and sold them on 4/27/12 for $1.65. I made $1150 in one day. Thanks. I knew something good would happen sooner or later.
    HOW THE HECK did you know Green Mountain Coffee (GMCR) was going to go down 20 points???!!!! I bought 10 of the May 35 puts at $0.49 and then 5 more at .30. I sold them at 5.80. Thank you again.
    You have made a believer out of me. Alan

    Rick –
    I have only been a member for about 6 weeks but I have done well on most of the trades. My first two were QQQ and SPY a month ago and since then I've gotten into the groove and been doing well.
    I try to execute the trades that you recommend as soon as you send them out, sometimes I can't and I miss the Entry price. However, sometimes when I miss the Entry, the price goes down and I get a better price.
    That's exactly what happened with GMCR.
    You recommended it at around $.81 I think, but by the time I got to it, the price was $.27. I bought 100 Puts on Wednesday May 2, 2012 and sold half of them 24 hours later at $5.95 for a nice 2,203% gain. As per your recommendation, as GMCR went above $30 I sold the remaining 50 Puts at $5.50 for a slightly less 2,037% gain.
    On average that one trade netted me a 2,120% gain, entirely based on YOUR recommendation (and a little bit of luck). To put this in real terms, I risked $2,700 on Wednesday and pocketed $54,550 just 24 hours later.
    So uhh, let's do that again real soon!!
    Feel free to use my name. The tax guys have me on speed-dial already anyway. Dennis

    Rick:
    That was awesome on your GMCR pick, I know how risky it can been holding into earnings but you pulled it off. 
    I just started my autotrading with you today and am in on your QQQ play. I look forward this service. 
    I have a busy career and I have tried to follow and trade throughout the day and found it too hard. I hope you continue to have a great year, I plan to go along for the ride. I am starting slow but will pile more in once I have secured some profits. 
    Keep up the good work your trading has been spot on. I am sure you paid your dues to get this point in your career. Anthony

    Rick:

    Great call on GMCR!  I have been trading for about 15 years actively.  This may be the best trade I ever made.  Got in on Monday, April 30 and the stock was up from when you recommended it.  It went up further after I got in.  Here are the facts:
    Monday, April 30th: Bought 15 June 37's at $1.25= $1900 approx
    Thursday, May 3rd: Sold 15 June 37's at $9.30=$13,950
    Gain for the week: $12,050.
    I understand you will not get them all right.  It’s important to ride those winners and as you could tell from my selling price, I sold when the stock went to $28.10, so left a little on the table.  Who can complain.
    Keep the suggestions coming, looking for another jump on your FSLR, one that I have been riding very hard.
    Best regards, Bob
      

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