The bears are pushing the second wave of support as we head into the second half of trading, the weekend, and October. Futures were flat before the European markets opened and got progressively worse before the opening bell here at home.
Earnings and economic news are in focus today and things got ugly after the release of the Chicago PMI. The index fell below 50 to 49.7 versus forecasts for a print of 53, or unchanged from a month ago. This was the lowest reading since September 2009.
Shares of Research In Motion (RIMM, $7.78, up $0.64) are popping higher today after the company reported a narrower-than-expected loss for the quarter. RIMM posted a loss of 27 cents a share on revenue of $2.9 billion. The suit-and-ties were looking for red ink of 47 cents a share on sales of $2.5 billion.
This now makes 3-straight quarter the company has reported a loss but its cash reserves were actually up. Many analysts believed RIMM was burning through its cash reserves as it readies its BlackBerry10 for release in early 2013.
We actually looked at the stock last week for our Weekly Wrap portfolio as a covered call trade but we were a little unsure on what kind of numbers they would report and wanted to listen to RIMM’s conference call. Then again, we weren’t really concerned with their numbers because we penciled-in another loss but we do believe their intellectual properties have some value.
We looked at a possible option trade or two yesterday before our midday update and there were a number of ways we could have played RIMM’s earnings. Of course, this is after the fact but these strategies will help you down the road with other possible setups.
The RIMM October 8 calls (RIMM121020C00008000, $0.45, up $0.07) closed yesterday at 38 cents and traded to a high of 71 cents at the open this morning. The October 6 puts (RIMM121020P00006000, $0.05, down $0.20) ended the session at 25 cents.
With shares at $7 heading into yesterday’s close, a 10% move, or 70 cents, would not have been enough to get either of these options “in-the-money”. The strangle option trade, or “chicken trade”, could have been used if you were unsure on the direction shares might trade after the announcement. We then penciled-in a 15% move which would have moved shares more than a buck and shares did reach a peak of $8.20 but we decided to sit on the sidelines.
We will keep the stock on our Watch List as a possible long, or short, idea but RIMM still hasn’t proved anything and losses are expected to continue into the next quarter.
Although we may have missed on RIMM, we have been hot since mid-August as we have ran our recent streak to 17-out-of-19 winners. This includes 4 triple-digit returns of:
+193% on WellPoint (WLP) put options in 9 days
+113% on Monster Beverage (MNST) put options 8 days
+160% on Green Mountain Coffee Roasters (GMCR) call options in 24 hours
+100% on JC Penney (JCP) put options in 15 days
We plan to be aggressive during earnings season because we have had a tremendous year despite a choppy June and July. Our Closed Trades for 2012 are now at 132-43 for a 75% win rate for all of our trade recommendations. This includes our Weekly Wrap publication that is 24-0 for the year.
We have a lot to cover as we want to get to our current trades so that’s it for today.
The Dow is down 47 points to 13,439 while the S&P 500 is off by 6 points to 1,441. The Nasdaq is lower by 13 points to 3,123.
September was a sweet month for us and we will be back to go over the numbers on Sunday night with our Weekly Wrap and on Monday with our Daily update. We will also take a peak at historical October’s over the years to see what could be in store for us next month if the bulls fail to hold support. Until then, have a great weekend everyone!