MomentumOptionsTrading.com Midday Update for 4/10/2014
BBBY Takes a Bath/ Profit Alert (KOG)!!!
Shares of Bed Bath & Beyond (BBBY, $63.75, down $4.16) are down 6% today after the company posted weaker-than-expected earnings results and lowered its outlook for the current quarter.
Bed Bath & Beyond matched Wall Street’s $1.60 a share target but they missed on revenue of $3.2 billion versus expectations for $3.22 billion as same-store-sales rose just 1.7%.
For the current quarter, the company forecasted earnings of $0.92-$0.96 a share versus the suit-and-ties calls for $1.04 a share.
Here were our thoughts on a possible earnings trade from our Weekly Wrap (quotes from 4/4/14):
“Bed Bath & Beyond (BBBY, $69.22, down $0.58)
April 72.50 calls (BBBY140519C00072500, $0.80, down $0.20)
April 67.50 puts (BBBY140419P00067500, $1.25, up $0.20)
Thoughts: Shares could move 10% or more on earnings and the trend feels lower.” (END)
We should have expanded our research a little more as the one in “our town” was recently shut down. The company has been a Wall Street darling for years but competition in the space has picked up, especially online.
We listed both calls as puts as a possible strangle option trade for protection in case the company might have matched or beat expectations.
The April 67.50 puts (BBBY140419P00067500, $3.50, up $1.90) were at $1.60 ahead of Wednesday’s close and are up over 120% on the drop below $65.
The April 72.50 calls (BBBY140519C00072500, $0.03, down $0.37) were at 40 cents going into yesterday’s close and are naturally getting crushed.
Together, these options could have been purchased for $2 and at current levels the trade would have made 75% had we pulled the trigger yesterday.
We often mention earnings trades can be fun and difficult to trade because there are numerous factors involved in determining if shares are going to rally or pull a Tom Petty (Breakdown). However, this one may have been a Captain Obvious as Bed Bath & Beyond continues to struggle.
This week’s bigger earnings announcements come tomorrow as JPMorgan Chase (JPM, $58.49, down $0.78) and Wells Fargo (WFC, $48.54, down $0.56) are scheduled to release their results.
The bulls need a solid report from both to end the week on a strong note as their is weakness today.
We have done well navigating the choppy waters as we have 4 current trades at or near triple-digit gains. We haven’t purchased too many put options this year (or last) but we wanted some protection last week. The stock we picked was an old short favorite of ours and continues to break down like a rented mule so feel comfortable holding the position.
The other trades are bullish option positions on stocks at or near 52-week highs. The knuckleheads that say it’s been a stock picker’s market have been correct as these stocks have stayed under Wall Street’s radar.
We have raised our stops and have made a few of them Hard Stops in case there is further weakness this afternoon but we are still expecting the bulls to push new highs this month, possibly as early as next week.
As we make the turn, the Dow is down 143 points to 16,293 while the S&P 500 is lower by 23 points to 1,848. The Nasdaq is getting spanked for 98 points to 4,085 and the Russell 2000 is off a double-deuce (22 points) to 1,137. The VIX is at 14.65, up 0.83.
Subscribers, check the Members Area for the current updates and stay close to your computer and mobile devices as we could have additional Trade Alerts into the close. We could also have New Trades for our Weekly Wrap as well.