The bulls are going for the hat trick today as they try to seal the deal on 3-straight winning sessions. The S&P 500 has hit an all-time intraday peak of 1,884.60, we’re not fooling, and the VIX has dipped below 13.50.
Before we cover the indexes, we wanted to provide a quick update on a trade from our Weekly Wrap earnings section.
Shares of CalMaine Foods (CALM, $62.95, up $0.17) are trading slightly higher again today following Monday’s 9% surge and spike north of $64 on better-than-expected earnings.
The company reported a profit of $1.77 a share on revenue of $395 million. Wall Street was looking for $1.41 a share on revenue of $360 million. On the surface, this is a huge beat on the top and bottom lines. Our research showed this possibility.
Here was the write-up from Sunday night’s Weekly Wrap (quotes from 3/28/14):
“CalMaine Foods (CALM, $57.51, up $0.60)
April 60 calls (CALM140419C00060000, $0.75, up $0.10)
April 55 puts (CALM140419P00055000, $0.65, down $0.10)
Thoughts: The option chains only trade in $5 increments and this kept us out of a possible trade on Friday along with the bid/ ask widening.
In late December, the company beat estimates by 3 cents and revenue was $25 million above estimates. Shares were at $60.37 but traded flat the following session, down 14 cents on 12/31/13. The first day back in 2014, shares fell nearly $3 to close at $57.40 and were below $50 by the end of January. Shares are right at December levels and there is a chance another move of $10, either way, comes by the end of April.
The 52-week peak is north of $60 and a break above this level will likely lead to some fluff to $65 on a blue-sky breakout. However, if the company disappoints, shares could easily fall below $55 and test $50. The late January and early February low was $48.90 and this level would likely be tested if the company totally drops the ball. A break below the “double bottom” could lead to a further breakdown to the mid to lower $40′s.
The company has beat and tied estimates the past 3 quarters and missed in the prior one before those. The last two have been a beat by 4 cents, a match, and the two before were wild with a 52-cent beat and 13-cent miss.
There are only 2 suit-and-ties with estimates and they are expecting earnings anywhere from a profit of $1.22 or $1.59 (a share). Needless to say, the chance for a huge beat or miss will be there.
This could make the headlines although investors won’t know there are only 2 analysts covering a $57 stock.
The cost for both options would have been $1.40-$1.50 on Friday. We would have needed to get into them on Friday as the company reports before Monday’s open.
The breakeven point is for shares to make a move above $61.50 or a drop below $53.50. Another worry was that shares will have to make the move in the next 3 weeks.
We can “follow” the trade for education purposes and if shares trade flat we could look at a trade with May options.” (END)
The April 60 calls (CALM140419C00060000, $3.40, up $0.10) opened at $1.70 on Monday and closed the day 400% higher after ending at $3.30. They traded to a high of $4.20 and today they have traded to $3.90.
The April 55 puts (CALM140419P00055000, $0.20, down $0.05) folded like a cheap lawn chair as they lost over half their value and have no “bid”.
The losses on the put options, even at 100%, would easily have been offset by the call options and why we suggested a possible strangle option trade.
The aforementioned trade could have been entered for $1.50 ahead of last Friday’s close and would have easily been a triple-digit winner but we hesitated and it cost us.
No worries as we have been building up cash for possible 1Q earnings trades that start next week. Still, we should have pulled the trigger as we did a lot of research on the trade. Hopefully, the next one we do will make it easier for any newbies to try a strangle option trade.
As we make the turn, the Dow is up 62 points to 16,520 while the S&P 500 is gaining 8 points to 1,880. The Nasdaq is advancing 47 points to 4,246 and the Russell 2K is popping a 6-pack to 1,179. The S&P 500 Volatility Index ($VIX, 13.41, down 0.47).
We have another New Trade today and we have updated our current ones. Subscribers, hit the Members Area for the updates and stay close to your email inboxes into the close in case we have additional Trade Alerts.