The bulls got a bevy of good news before the bell this morning which led to a good start for the market as the major averages continue to push the July 2011 highs. Bank of America (BAC, $7.11, up $0.31) is giving the Financial stocks a lift after beating Wall Street’s revenue expectations. The suit-and-ties were floored when the company posted a profit of 15 cents a share on revenue of $25.1 billion which beat their projection of $24 billion in revenues. We have been pounding the table on the stock when shares were at $5 back in December as it is a current member of our Weekly Wrap Covered Call portfolio which could start January at 10-0.
Economic news was fantastic as Initial Claims fell to 352,000 versus expectations for 384,000 while Continuing Claims were 3.43 million versus forecasts for 3.6 million. Elsewhere, Consumer Prices were unchanged which was below calls for an increase of 0.1%. The core reading, excluding food and energy, matched the hype and was up 0.1%. And finally, from the crib, Housing Starts dropped for the month of December, coming in at 657,000 versus expectations for 680,000 while Building Permits matched forecasts.
Google (GOOG, $636.00, up $3.09) will confess their quarterly numbers after the bell and shares have a history of making huge moves after they announce earnings. Of course, this is option expiration week and the January options are still in play so let’s take a look at the stock and some of the options.
The last time the company reported their quarterly results (mid-October 2011), shares surged $32-and change from $559 to $591, on better-than-expected numbers. The high that day was $599. In July 2011, Google also beat estimates and zoomed from $529 to $597 and kissed a high of $600.
A 10% move in Google would equate to a 63-point move in the stock and we could see that on an earnings miss to the downside. However, the upside may not be quite as huge if it is not a blowout quarter and could only be 5% or less which is still $30 but is it enough to create a possible strangle option trade?
The Google January 700 calls (GOOG120121C00700000, $1.10, down $0.20) and the January 575 puts (GOOG120121P00575000, $0.90, down $0.70) would cost $2 together and are a possibility but the stock would need to be at $702 or $573 for us to break even. At $704, or $571, the trade would double but again, the options expire tomorrow.
This is NOT an official option trade recommendation but we wanted to show you how strangle option trades work since we have a ton of new subscribers. The risk/ reward on this trade doesn’t look great and it may be better off to SELL these options but that is another strategy altogether and one we certainly don’t recommend on a $600+ stock.
We will take a look at these options again on Friday to see where they are at and we would like to see a blowout quarter which would help the Tech sector keep its momentum.
As we head to press, the Dow is up 14 points to 12,593 while the S&P 500 is higher by 5 points to 1,313. The Nasdaq is showing a pop of 20 points to 2,790.
As usual, we have a number of open trades and there is a lot to talk about so let’s go see where we are at. Microsoft and IBM and Intel also report after the bell so tomorrow could be explosive for either the bulls or bears depending how things go. Subscribers, check the Members Area for the updates.