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1:35pm (EST)
Futures were slightly lower when the overseas markets opened and we mentioned yesterday we had a nervous feeling about today’s nonfarm payrolls report. We closed 2 calls option trades this week because we got a clue on Wednesday the bears had a good chance of cracking support.
We showed our subscribers in our chart work the S&P was in serious danger of falling below 1,300 and we added 3 put trades this week to take advantage of another leg lower.
Although we didn’t predict it or put it in writing, we had a feeling nonfarm payrolls had a chance of coming in below 100,000. The suit-and-ties were looking for a print of 150,000 and were mortified when only 69,000 jobs were added for the month. Unemployment ticked up from 8.1% to 8.2% but we have said the real number in America is in the mid-teens.
Dow futures were already down triple-digits and doubled on the news.
We alerted our subscribers of a possible trend change in late March and we have mainly used put options since. While May was a horrible month for Wall Street, we are happy to say we had another incredible month as well as our subscribers.
We closed 18 winning trades in May with 6 triple-digit winners. We are on an 18-trade win streak since mid-April and we have closed 34-out-of-35 winning trades since March.
Some of our winners include +576% on Green Mountain Coffee Roasters (GMCR, $22.73, down $0.87) put options, +167% on Joy Global (JOY, $26.22, up $0.36) put options, +172% on KLA-Tencor (KLAC, $44.38, down $1.35) put options, +119% on the PowerShares QQQ Trust (QQQ, $60.74, down $1.32), +113% on Coinstar (CSTR, $59.14, down $2.29) and another KLAC trade that returned 144%.
Needless to say, we have been in a zone.
We also find it an insult when the talking heads and Wall Street “pros” tell you to stay out of the market or the game is rigged. What a bunch of hogwash.
For the investors singing the blues because they got Facebook-ed (FB, $27.92, down $1.68), they should be learning how to protect themselves as they easily could have bought put options.
The original IPO and share offering price were fine and we seriously were thinking of buying Facebook shares for our Weekly Wrap – until everyone got greedy. Once the offering price was raised AND the number of shares, the stock instantly became overvalued.
Investors could have shorted the stock at $45 but we didn’t like the idea of putting up $4,500 (in a hectic market) to short 100 shares. Instead, we said we would wait for the options to list but this was an alternative until then.
We have profiled Facebook options all week on our Watch List and although we haven’t pulled the trigger on a trade, if we had bought the stock when it went public we would have sold calls against our position or we would have bought some put options.
We profiled the June 30 puts (FB120616P00030000, $2.70 up $1.00) in our Tuesday midday update which were going for $1.75 at the time. Yesterday, when Facebook traded down to $26.83, those put options could have been sold for $3.50 for a 100% return. Bingo, stop whining.
This is the power of options and it is one of the reasons we started this website 5 years ago to prove the market isn’t rigged and that the “little guy” does win. It just takes a lot of homework, a lot of research, and a lot of quick trading.
We don’t have exact figures but we would say over 80% of the investing public, and probably half of the Wall Street brokers, have NO CLUE on how dynamic options can be. Most of them don’t do homework, don’t read charts, and fail to think outside-the-box.
This is why you have us.
Currently, the Dow is down 221 points to 12,172 while the S&P is lower by 260 points to 1,284. The Nasdaq is tanking 65 points and is at 2,762.
We continue to tell our subscribers you can make just as much money in down markets as you can up markets so don’t be nervous and certainly DON’T pull your money out of THIS market. We continue to tell you this is one of the best years we have seen to make some serious profits and we continue to feel the back half of the year could be just as explosive.
Again, we closed 18 winning trades in May with 6 triple-digit winners. We are on an 18-trade win streak since mid-April and we have closed 34-out-of-35 winning trades since March.
We will leave it there on that note as we have a number of trade updates to cover. Subscribers, check the Members Area for the juicy details.
We will be back Sunday night with our Weekly Wrap so until then, have a great weekend everyone!
Dow Trips 13,000/ FaceBook (FB) Taps New Lows
Friday, July 27th, 2012
1:45pm (EST)
The news Wall Street has been dying to hear finally arrived after Thursday’s close as FaceBook (FB, $24.07, down $2.77) announced its first quarterly earnings as a publicly-traded company. There was much debate on where their numbers would come in at and not one analyst stepped-up to the plate with a “Buy”, “Hold”, or “Sell” rating before the close because none of them knew what to expect.
Shares popped 5% on the initial news release after matching expectations and beating on revenue but were down 10% just 30 minutes later. FaceBook went out at $24 in after-hours last night and those losses have carried over into today’s session as shares have reached a low of $22.28.
We said on Wednesday that FaceBook could get a kitchen-pass from the suit-and-ties because it would be their first time stepping up to the earnings plate. Most rookies’ who step up to the Big Leagues strike out in their first at bat, unless they are special.
Of course, one at bat doesn’t make a career but FaceBook said some things that spooked investors. The company took a massive charge, monthly active user use is falling, and gross margins are slipping.
In mid-June, we did some chart work on FaceBook and came up with a near-term price target of $24. At the time of our recommendation, shares were at $28 and we decided to go with the July 24 puts which have already expired. We got into trouble right off the bat as shares closed at $30 the following day. By month end, shares had made a high of $33.45 but we still felt the stock would come back down to the mid-$20’s which is why we pushed the trade.
Of course, our time frame was a little off and we should have went with the August puts which would have given us a little more time for the trade to play out.
Although our FaceBook July trade was a debacle, it shows that sometimes your homework can be right on but the timing can be just a little off. We knew FaceBook was in a no win situation and we were hoping they would have reported earnings BEFORE the July options expired but at the time of the trade, the company’s earnings date wasn’t confirmed.
It was rumored FaceBook would report July 20, which is when the July options expired but we should have waited for confirmation. If we had went with August put options the trade would have drastically different results.
We did blow the trade and we hate losers as much as you do but we got a moral victory just seeing shares fall below $24 last night in after-hours.
We were also looking for Coinstar (CSTR, $50.97, down $8.25) to fall below $60 last week. We also ran out of time on a July put option trade for Coinstar as we said the market makers would keep the stock above $60 on expiration day. Today, shares are down 14%.
We normally don’t like to take the same trade twice after getting burned on an option but in this case we should have followed through with our instincts and added to both positions by buying August or September put options.
Our 2012 Track Record is 105-31 for the year which is a 78% win rate so we can’t beat ourselves up too bad. When we make a trading mistake, we still like to look back on our trades to see if we can learn anything.
We also did some chart work last night to confirm a few resistance points because futures were up throughout the night. Although this morning economic news wasn’t all that great, the market has continued to rally after more comments on the euro has gassed today’s gains.
Angela Merkel and Francois Hollande issued a joint statement saying “Germany and France are deeply committed to the integrity of the Euro Zone. They are a determined to do everything to protect the Euro Zone”.
We thought Tuesday could be the breakdown out of the current 3-month trading range as the market was teetering at the bottom but the recent comments overseas has everyone on Wall Street buying into the hype.
We shall soon find out how serious Europe is, along with our Fed, on how committed they are to quantitative easing. Greece will be back in the headlines on Monday and the Fed meets next week. If they are all talk and no action, the gains from today will quickly evaporate.
As we head to press, the Dow is up 193 points to 13,080 while the S&P 500 is higher by 25 points to 1,384. The Nasdaq is surging nearly 60 points and is at 2,952.
We have some last minute updates before the weekend so let’s get on it. We will be back Sunday night/ Monday morning with our next issues of the Weekly Wrap and Daily. Until then, have a great weekend everyone!
Tags: covered call trading, CSTR, FB
Posted in Earnings, Facebook, Market Analysis, Market Commentary | Comments Off