MomentumOptionsTrading.com Midday Update for 2/20/2014
M&A Action Heating Up
Futures were showing a sloppy open for much of last night following weaker PMI (Purchasing Managers Index) numbers out of China and Europe but turned green ahead of the open following in-line economic numbers from here at home.
There has been a flurry of Merger & Acquisition news this week including today’s headlines Facebook (FB, $67.79, down $0.27) is buying social messaging service WhatsApp for $16 billion. We will talk more about the others marriages in our Weekly Wrap but this is a good sign future deals are coming.
Earnings have been a mixed bag today as some companies have beat Wall Street’s expectations while others have been taken to the woodshed.
One stock breaking down like a rented mule is Conn’s (CONN, $37.70, down $18.10) which is down 32% after cutting their profit forecasts for this year AND next. The company reminds us of an upscale Circuit City as they sell electronics, appliances, furniture and other home goods but we all know how that story ended.
Conn’s forecast current quarter earnings $0.75-$0.80 a share that was well short of the suit-and-ties forecast for $0.93 a share. The company also lowered its 2014 forecast to $2.59-$2.64 a share from $2.75-$2.80 and cut their 2015 numbers to $3.40-$3.70 from $3.80-$4.00 a share. Wall Street had penciled-in numbers of $2.77 and $3.96 a share, respectively.
Shares often make huge moves following earnings and although we remembered this, we don’t actively follow the stock. Too bad because we could have made a mint on the February 55 puts (CONN140222P00055000, $17.80, up $17.15). (see website for snapshot of quote)
We wanted to show the Yahoo Finance quote below because this is what makes trading options the most lucrative investment in the world. As you can see, these options are up over 2,638% and there is a decent amount of open interest. Somebody is getting paid today.
These options were going for 65 cents in Wednesday’s close and a 10-contract trade would have cost $650. At current levels you could cash them out for $17,800. A 1-contract trade for $65 would be worth $1,780. Insane.
Of course, we weren’t in this trade but we should have flagged their earnings report as we saw they were reporting this week. We mentioned we looked at 50 possible earnings trades for this week and this was a hidden gem we didn’t find.
There are plenty of earnings trade candidates for next week we have already been doing our homework on them. We list possible earnings trades for the upcoming week in our Weekly Wrap Earnings Section every Sunday night and some of them make it to the Daily.
The bulls are trying to make up for Wednesday’s losses and have done so as we head into the second half of trading. We would like to see the current gains hold but Friday’s (and Monday’s) close is more important.
The Dow is up 100 points to 16,140 while the S&P 500 is higher by 11 points to 1,840. The Nasdaq is advancing 21 points to 4,259 and the Russell 2000 is gaining 9 points to 1,158.
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