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Posts Tagged ‘strangle option trades’

Pep Boys Plummets on Another Earnings Miss

Tuesday, April 15th, 2014

12:05pm (EST) 

There were a number of earnings option trades we profiled in our Weekly Wrap Earnings section and Daily Watch List for this week.  With earnings season just getting into second gear, there will be a bevy of opportunities for quick trades that could return 100% or more on stocks that move 5%-10%.

The two trades we profiled for today were Pep Boys (PBY, $10.13, down $1.84) and Coca-Cola (KO, $40.19, up $1.46).  Both companies reported their numbers before this morning’s open and while we were unsure on Coca-Cola, we had a very good feeling Pep Boys would disappoint Wall Street.

The company reported a loss of 6 cents a share on revenue of $496 millio.  The suit-and-ties were looking for a profit of a nickel a share on sales of $534 million.

Here were our thoughts on Manny Moe & Jack:

Pep Boys-Manny Moe & Jack (PBY, $11.89, down $0.20)

May 10 puts (PBY140517P00010000, $0.30, flat)

Thoughts:  Shares could be headed to single-digits on another earnings miss.  The company has missed Wall Street’s estimates over the past 4 quarters by 1,2,1 and 9 cents last quarter.  This is a sign of bad management and with the rough winter they will likely kitchen sink their numbers.  Shares usually trade lower after the announcement and we like these put options.

The trade can be entered before Monday’s close

and if shares sink below $10 on Tuesday these puts should easily double.” (END)

We had a feeling shares might hit single-digits on another earnings miss but these options are thinly traded.  The open interest coming into today was only 10 contracts on the May 10 puts (PBY140517P00010000, $0.40, up $0.10).  They have traded over 300 contracts today but the bid/ ask was out of whack at 10 cents/ 30 cents when we looked at the trade ahead of yesterday’s close.

As option traders, we like to see the bid/ask at 5 cents or less with heavy open interest.  This makes it easier to get in and out of option trades without getting scalped.

As far as Coca-Cola, the company matched estimates for a profit of $0.44 a share with revenue coming in slightly higher.  Here were our thoughts on Big Red:

Coca-Cola (KO, $38.63, down $0.26)

May 39 calls (KO140517C00039000, $0.50, down $0.18)

May 38 puts (KO140517P00038000, $0.40, up $0.08)

Thoughts:  This is an important quarter for Coca-Cola and the options are relatively cheap.  We have listed a strangle option trade and while it would be hard to short the stock, shares could test $36 if they miss estimates.” (END)

The May 39 calls (KO140517C00039000, $1.30, up $0.80) were going for 50 cents ahead of. Monday’s close and are up over 150%.

The May 38 puts (KO140517P00038000, $0.10, down $0.30) are down 75%.

This would have been a nice double-digit winner as the calls and puts could have been purchased for 90 cents and at current levels the options together are going for $1.40.  This represents a return of 50+% and here is how the trade could be managed going forward.

The May 39 calls could be closed at current levels that would lock-in gains of nearly 50% even if the May 38 expire worthless.  They are only worth a dime so they could be left open for protection going into May.

If Coca-Cola slips back below $40 and then $38 by mid-May these options could rebound.  If shares are at $38.80 the puts would be worth 20 cents.  If shares are at $37 the options would be worth $1.

This would make the overall return on the original trade greater if shares do fall below $38.  It would be a no-brainer to leave the put options open while closing the calls.  If shares stay above $38 the options will expire worthless but the trade has already locked-in double-digit gains.

The beauty of strangle option trades is that this trade could return triple-digits without the risks of going short at current levels.

There are a number of other earnings trades we like for the week so stay locked-and-loaded.

As far as the market, the indexes got off to a good start but have weakened as we head into the second half of trading.

The Dow is down 26 points to 16,146 while the S&P 500 is lower by 2 points to 1,828.  The Nasdaq is off 39 points to 3,983 and the Russell 2000 is declining 10 points to 1,105.

It appears geopolitical tensions are heating up and is the cause for the pullback.  Once again, today’s close will be important.

Subscribers, hit the Members Area for the updates and stay close to your email inbox for possible additional Trade Alerts this afternoon.

Sonic (SONC) Soars 11%, Options Zoom 200%/ VIX Below 15

Tuesday, March 25th, 2014

2:05pm (EST)

Shares of Sonic (SONC, $23.21, up $2.29) are surging to fresh 52-week peaks following another decent earnings report.  The company reported their numbers after Monday’s close and beat estimates by a penny, or, the 6 cents analysts had expected.  However, Q2 revenues came in over $1 million light at $109.7 million versus expectations for $110.9 million.

Wall Street has been punishing stocks that miss on revenue but Sonic did guide future earnings higher and above current estimates.

Here were our thoughts in our Earnings section from Sunday’s Weekly Wrap (quotes are from previous Friday’s close):

Sonic (SONC, $21.27, down $0.32)

April 22.50 calls (SONC140419C00022500, $0.45, down $0.05)

April 20 puts (SONC140419C00020000, $0.40, up $0.10)

Thoughts:  We have been following the stock since it was in the single-digits and we should have added it to our Weekly Wrap as a covered call trade a few years ago.  Shares have been pushing 52-week peaks as Sonic has become the alternative to other well-known burger joints and another good earnings report could get shares near $24.  However, if they use the weather excuse or low guidance, shares could fall below $20.” (END)

The April 22.50 calls (SONC140419C00022500, $1.10, up $0.75) are up 214% and have traded to a high of $1.35 today.

The April 20 puts (SONC140419C00020000, $0.05, down $0.55) have folded like a cheap lawn chair as they are down over 90%.

The aforementioned call and put options would have made a great strangle option trade and are otherwise known as chicken trades due to an investor’s uncertainty on which way a stock might move.

Chicken or not, we should have pulled the trigger as shares have traded to a high of $23.51 and we had a good feeling a 10+% move was coming.

The cost of the trade would have been less than $1 on Monday’s open to do the strangle trade and there was a good chance to make 30%-40% on this morning’s open.  Of course, going long just the call options would have made over 200%.

If you haven’t signed up for our Weekly Wrap, do so today if you are interested in these types of trades.  There are a number of other earnings trades we have profiled for the week and while we do take them from time to time for our Daily, we don’t like overloading our portfolio with just earnings trades.

We have been mentioning the start of 1Q earnings are 2 weeks away and could help or hinder any rally or pullback.  This could be another good reason why the market has settled in a trading range for much of March and for the year for the most part.

We have one current earnings trade that will be front-and-center on Friday and FDA news will be in play for another one of our trades on Thursday for our Daily.  In other words, we have enough drama going on this week from our current trades to take additional action on others but there are still a lot of trades we like on our Watch List and from the Weekly Wrap.  We just want to get through this week before possibly opening the playbook up even further.

As we make the turn, the bulls are showing some muscle as the Dow is higher by 118 points to 16,395 while the S&P 500 is gaining 9 points to 1,867.  The Nasdaq is up 10 points to 4,236 and the Russell 2000 is advancing 2 points to 1,180.  The S&P 500 Volatility Index ($VIX, 14.52, down 0.57).

We have a lot to cover inside our Members Area so let’s get on it.  We could have additional updates into the close so stay close to your email inboxes.

KB Home (KBH) Surges 8%, Yellen on Deck

Wednesday, March 19th, 2014

1:30pm (EST)

With Wall Street getting ready for the upcoming 1Q earnings season in April, current earnings reports have been an afterthought.  Publicly-traded companies have different reporting periods and quarters depending on when their corporations were formed and the offbeat quarters are still worth watching.

Every Sunday night, we list possible earnings trades that we like for the upcoming week.  Some trades are bullish, some bearish, while others are possible straddle and strangle option trades.

Our goal is to find stocks that could move 10%, up or down, to make a 100% return with near-term options.  One trade we were targeting was an option trade for KB Home (KBH, $19.07, up $1.439).

Here were our thoughts in Sunday’s 3/16/14 Weekly Wrap (quotes from 3/14/14):

“KB Home (KBH, $17.51, down $0.17)

April 18 calls (KBH140419C00018000, 0.70, flat)

April 17 puts (KBH140419P00017000, $0.70, up $0.05)

Thoughts:  We have played bullish positions recently in KBH and this will be a big quarter for the company.  They could say the weather played a major role in a miss or they could say nothing and business is good.” (END)

The knuckleheads on Wall Street have been downgrading the stock in recent weeks but we have said KB Home was one of our favorite stocks in the Housing sector.

The company reported a profit of $0.12 a share on revenue of $450.7 million versus estimates for $0.08 a share on sales of $435.3 million.  KB Home also ended the quarter with a higher number of homes in backlog and with a higher average selling price.

We listed put options in case the suit-and-ties knew something we didn’t due to the downgrades but business was great and they were way off on their numbers.

We should have listened to our gut as the April 18 calls (KBH140419C00018000, $1.40, up $0.70) are up 100% and gave traded to a high of $1.67.

The April 17 puts (KBH140419P00017000, $0.15, down $0.40) are folding like a cheap lawn chair as they are down over 70%.

The beauty of a strangle option trades is that if a stock does move roughly 10% or more, the right near-term call and put options should offset each other enough to make a decent double-digit profit.

Both options could have been purchased on Monday’s open for 70 cents apiece and the premiums would have total $1.40.

With the calls at $1.40 and the puts still at a 15 cents, the premium adds up to $1.64 and would represent an 11% return if both sides of the trades were closed at current levels.

We didn’t take this trade for our Daily but we wanted to show how these types of option strategies work because we do recommend them from time to time in our Weekly Wrap.

Our Daily newsletter aims at making triple-digit profits for all of our trades and the Weekly Wrap strides for monthly double-digit returns.

We have been busy with our current trades and while we may miss a few here and there, we should have stuck to our guns and issued this trade for our Weekly Wrap.  We probably should have gone straight-up with the call options for our Daily.

We can’t complain though as we have some nice pin action going with our current trades.

As we make the turn, the Dow is higher by 2 points to 16,338 while the S&P 500 is gaining 1 point to 1,873.  The Nasdaq is down 3 points to 4,330 and the Russell 2K is down 2 to 1,203.

Subscribers, hit the Members for the current updates!


Wall Street, Apollo Education Group (APOL) has a Problem

Wednesday, January 8th, 2014

1:35pm (EST)

No matter how much you hate a stock or feel it is overvalued, overhyped, or that analysts just don’t get it – it is often best to sit on the sidelines as emotions can play a major role in the difference on a good trade or bad trade.

With the student loan debt surpassing $1 trillion, there will come a judgement day when company books will have to reset as more and more loans default.  Blame the zombies for the majority of these problems as they pay out unemployment benefits and encourage everyone to go to school.  Especially, online colleges that they help fund with taxpayers money.

Back to the main point.

Apollo Education Group (APOL, $30.52, up $3.59) is a stock we have hated for years but have respected because it is made of teflon.  We talked about the company’s story in our Weekly Wrap and here were our thoughts ahead of earnings (quotes from 1/3/2014):

Apollo Education Group (APOL, $27.03, up $0.14) is

January 25 puts (APOL140118P00025000, $0.70, down $0.05)

January 30 calls (APOL140118C00030000, $0.55, up $0.05)

Thoughts:  For those of you that have followed us over the years, you know we have always been bearish on Apollo Group as it is one of our favorite ways to play the $1 trillion in student debt loans.  We have covered the company’s “shady” history and we believe this is a low-teens to single-digit stock.  However, shares have been in a strong uptrend of late and that could continue depending on how the company spins its earnings report.  If we do take action, it will likely be a strangle option trade and where we would use both options to play a possible 10%-15% move on the news. (END)

Shares pushed $30 in after-hours trading last night and closed at $29.55.  They opened at $x this morning and have traded up to $29.93 and have trade to a high of $31.94.

The January 30 calls (APOL140118C00030000, $1.05, up $0.05) were at double-nickels (55 cents) and went out on Tuesday’s session at 57 cents.  They have trade to a high of $2 after opening at 86 cents.

The January 25 puts (APOL140118P00025000, $0.05, down $0.77) were at 70 cents Sunday night and went into yesterday’s close at 82 cents.  They opened at 10 cents this morning and traded to 40 cents before falling to a nickel.

A 10-contract trade for each call and put option is known as a strangle option trade.

Our gut instinct was right and going long the calls against our emotions would have paid off nicely.  The strangle trade would have made nearly 100% had the options been closed at the open and that is a sweet profit on less than 24 hours of work.

Still, to manage this trade would have been tricky but we liked the risk/ reward the options offered even though we hate the stock.

There will be a day we come back to Apollo Group as resistance is at $32 and in the past has been a brick wall.

As we head into the second half of trading, the market is mixed and the fireworks begin at 2pm as the Fed minutes will be released.

The Dow is down 63 points to 16,467 while the S&P 500 is higher by a fraction and is holding 1,838.  The Nasdaq is advancing 15 points to 4,168 while the Russell 2000 is lower by 2 points to 1,155.  The S&P 500 Volatility Index ($VIX, 13.09, up 0.17) is basically flat but could spike 5%-10% into the close.

Subscribers, check the Members Area for the updates.  We could have additional Profit Alerts and perhaps New Trades shortly after the Fed minutes are released so stay locked and loaded into the close.

Twitter (TWTR) Pushing $75/ December Strangle Option Trade Zoomed 329%, Profit Alert!

Thursday, December 26th, 2013

11:40am (EST)

As we wind down 2013, we thought we would take a quick look at the amazing run Twitter (TWTR, $74.09, up $4.13) has been on and why trading options on momentum stocks can be the most lucrative investments you will ever make.

We have been covering Twitter daily since its IPO back in mid-November with possible option trades but we have been a deer in headlights as we have been frozen by its amazing momentum.

Strangle option trades are also called chicken trades because a trader is unsure of the direction a stock will move.  However, a trader may feel as though a huge move will be made so while they are sometimes called chicken trades, these trades are for the savvy investors and most Wall Street pros tell rookies to stay away from them believe it or not even though these knuckleheads have no clue how they work.

Well, we will dummy things down to show you how easy strangle option trades are to do and to not be afraid of them.

Twitter shares zoomed past $70 during Tuesday’s shortened session and have reached a peak of $73.60 today.  Here was our original writeup and thoughts from the November 15th Midday Update along with an incredible strangle option trade that has played out like a fiddle (quotes are from that day).

Twitter (TWTR) Options Now Trading

12:00pm (EST)

We were looking forward to Twitter’s (TWTR, $44.20, down $0.49) recent Initial Public Offering (IPO) as a possible trade for our Weekly Wrap portfolio but we knew when the offering price kept bumping up our subscribers would get priced out.  We were looking to get in for under $30.

The range moved from the mid-teens a week ahead of the offering to the mid-$20′s that week of the debut to the low $40′s ahead of the open on the first day of trading.

We aren’t sure if the volatility has created a shorting opportunity or the chance to go long because the chart is too fresh to get a good read.  However, we do believe shares will be 10% higher of lower by mid-December and with Twitter options now trading let’s take a look to see if there is an opportunity to take advantage of this possible move.

A 10% move from current levels would push Twitter’s stock towards $50 or below $40.  Since we are unsure on direction, we can use options to calculate if there will be a profit if one (or both) of these price targets are achieved.

There are Weekly options available on Twitter so we could use the November chains for a possible play but we want to give the trade time for the stock to make the 10% move.

The December regular options have 35 days before they expire so they would be our first choice for a possible trade.

The December 48 calls (TWTR131221C00048000, $1.40, flat) could be used as a way to play a run to $50.  If the stock is at $51 by December 21 these options would be worth at least $3, or a double from current levels.  If the stock is below $48 these options will expire worthless.

The December 41 puts (TWTR131221P00041000, $1.40, flat) could be used as a way to play a drop to under $40.  If the stock is at $38 by December 21 these options would be worth at least $3 for a return of more than 100% from current levels.  If shares are above $41 by expiration then these options would expire worthless.

If we priced both options together, the total cost would be $2.80 and if shares are above $51 or below $38 a strangle option trade would make a small profit but if shares make a stronger move to $53-$54 or $36-$35 by December 21, these options as a strangle option trade would make you 100% or more.

We won’t be taking any of these trades today but we could over the next week or two as we will add these options to our Watch list.  We could take a swing at a Twitter trade using these options or another combination and if and when we do, you will be the first to know. (END)

The December options expired last Friday and Twitter shares closed at $60.01.  Notice how they closed a penny above the 60 option strike price as this was the battleground going into December expiration.

The December 48 calls were worth $12 when they expired and they were profiled in real-time at $1.40.  The profit on this side of the trade would have been 757%.

The December 41 puts were also at $1.40 and they obviously expired worthless.  Nobody was going to “put” Twitter on you at $41 when shares closed at $60.  The return on this side of the trade was (-100%).

We mentioned the total cost of the trade would have been $2.80 so let’s do some math.

If you had purchased just one option contract of each call and put, the cost would have been $280 ($140+$140).  A 10 contract trade would have cost $2,800.  A 5 contract trade on the calls and puts would have cost $1,400.

Option trading is about what you can afford to play with so we will cover all of them quickly.

The December 48 calls would have been worth $1,200 on 1 contract so the return on $280 would be 329%.

A 10 contract trade would have been worth $12,000 on a $2,800 investment for the same 329% return.

The $1,400 to buy 5 contracts of the aforementioned call and put options would be worth $6,000.

We cover a lot of ways to use options in our soon to be released option trading manual, How to Trade Options on Momentum Stocks.  The 2014 editions are shipping mid-January as we have to wait until the final charts for 2013 are ready to add for all of the major indexes.

This part of the trading manual is crucial as we show you how we predicted Dow 16,000 back at the beginning of February and when we make our annual forecasts for the market.  Nobody, and we mean nobody on the Street predicted the Dow would surge 3,000 points this year.  Well, we did and we don’t work on Wall Street.

We have a ton of more secrets that will be showcased in our trading course and new videos will be coming as we prepare for the Super Bowl for earnings.  4Q results will start to pour in the second week of January and will play a major role in the market’s direction.

The bulls are keeping the train on the tracks as they rapidly approach our yearend fluff targets we have been talking about.

The Dow is up 74 points to 16,431 while the S&P 500 is higher by a 6-pack to 1,839.  The Nasdaq is advancing 11 points to 4,166 and the Russell 2000 is at 1,164 – up 2 points.  The S&P 500 Volatility Index ($VIX, 12.21, down 0.27).

We have updated our current trades and we have a Profit Alert for one othat is up 50%.  We could have additional Profit Alerts today and/ or New Trades so stay locked-and-loaded into the close.

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    Rick & Team, GREAT Call on NKE for my two trading accounts:
    1) Entry at .65, out at 1.45, 1.55 Profit = $415
    2) Entry at .60, out at 1.75, 1.50 Profit = $485 PETER G.

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    1) Great call on the JoyG March 55. I bought when you said, then bought again on one of the dips. Booked 80+% profit. Made enough to pay for your service for years to come.

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    “I have really enjoyed the past month since finding your blog. You have made some great calls. I would appreciate info. on the new options mentoring program. Thanks.” JOHN H.

    “Hi Rick, I have been following your blog for several months now and I would like to be including on the list for your new service and to receive more information about it. And yes I was a Dendreon winner with your tips. Turned $280 into $7700, and literally saved my butt.” JEFFREY

    “I made over 6k on your Dendreon trade, and I’m very interested in learning how you pick and trade options. Sign me up.” ED

    “Rick – Wow what a day! I got in at the Dendreon calls at $2.25. Thanks to for your advice. I appreciate that. This company has a lock on this type of therapy and no one else in the world is close. Kind of reminds me of the type of companies that Peter Lynch and Warren Buffet suggest that investments be made in. Companies that can build a moat around their business model, that allows them to charge a premium for their product or service. In other words - a monopoly.” GREG

    “Hi Rick, Thank you so much for the Dendreon trade, I made almost $10,000 with that trade with a little over $2,000 investment. You have shown me the power of options trading. Again, thank you so much for all your inputs.” KEN

    “Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.” GARETT

    “Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.” TERENCE

    Jan. 31 2012
    Rick, new member...Studied all current trades, did some chart work,picked ZNGA, PEP, MGM...Sold on Feb. 2 for $3600.00 profit...Cost for 1-year membership to your newsletter was less than $1000.00..All I have to say..Thank you. John H –

    Rick, I purchased 10 contracts of the Nike March 85 puts Thursday afternoon for $2.00. Thing is, I was upset because the puts went down to $1.60 or so before the market closed. Well, needless to say Nike didn’t impress Wall Street and when I turned on the computer this morning the puts were worth $7.10! Sold them for a $5,100 profit!. Thanks again, you are the MAN. Chuck J-

    Hi Rick,

    I will start off with a thank you for your time and dedication to all
    the research you and your team commit yourself to. This is not me just being excited about the profits I have accumulated aka (bank) ! You have helped me get back to the passion I had of researching stocks/options. Keith N-

    Hi Rick,

    I want to share my great results on GMCR. Based on your comments on February 15th, I bought 20 options at $0.28. They closed today at $7.00, which is a 2,300% gain. My $560 dollars turned into $14,000 in less than a month. In decades of trading, this is my single best trade ever. Thank you! By the way, the Dow was down 228 points today and I could care less. What a great trade. It proves the amazing power of options. I am so grateful for your service, which calls it straight all the time, your options trading manual, and most of all, your amazing skill
    at finding winning trades. I have attached a copy of the trade from
    my brokerage screen.

    Hi Rick,

    Wow!! my account it up 70% since i joined last month and market is going the opposite direction. Really appreciate your service. I just wanted to drop a note to say THANK YOU. Hope to be with you guys for a very long time. Mel


    Great call on Fosl I bought the may 120 puts for 3.70 yesterday morning just sold for $32.00 today
    Keep up the great work
    Thank you, Henri

    Rick –

    I bought 10 Deckers Outdoor (DECK) May 55 puts at $0.50 on 4/26/12 and sold them on 4/27/12 for $1.65. I made $1150 in one day. Thanks. I knew something good would happen sooner or later.
    HOW THE HECK did you know Green Mountain Coffee (GMCR) was going to go down 20 points???!!!! I bought 10 of the May 35 puts at $0.49 and then 5 more at .30. I sold them at 5.80. Thank you again.
    You have made a believer out of me. Alan

    Rick –
    I have only been a member for about 6 weeks but I have done well on most of the trades. My first two were QQQ and SPY a month ago and since then I've gotten into the groove and been doing well.
    I try to execute the trades that you recommend as soon as you send them out, sometimes I can't and I miss the Entry price. However, sometimes when I miss the Entry, the price goes down and I get a better price.
    That's exactly what happened with GMCR.
    You recommended it at around $.81 I think, but by the time I got to it, the price was $.27. I bought 100 Puts on Wednesday May 2, 2012 and sold half of them 24 hours later at $5.95 for a nice 2,203% gain. As per your recommendation, as GMCR went above $30 I sold the remaining 50 Puts at $5.50 for a slightly less 2,037% gain.
    On average that one trade netted me a 2,120% gain, entirely based on YOUR recommendation (and a little bit of luck). To put this in real terms, I risked $2,700 on Wednesday and pocketed $54,550 just 24 hours later.
    So uhh, let's do that again real soon!!
    Feel free to use my name. The tax guys have me on speed-dial already anyway. Dennis

    That was awesome on your GMCR pick, I know how risky it can been holding into earnings but you pulled it off. 
    I just started my autotrading with you today and am in on your QQQ play. I look forward this service. 
    I have a busy career and I have tried to follow and trade throughout the day and found it too hard. I hope you continue to have a great year, I plan to go along for the ride. I am starting slow but will pile more in once I have secured some profits. 
    Keep up the good work your trading has been spot on. I am sure you paid your dues to get this point in your career. Anthony


    Great call on GMCR!  I have been trading for about 15 years actively.  This may be the best trade I ever made.  Got in on Monday, April 30 and the stock was up from when you recommended it.  It went up further after I got in.  Here are the facts:
    Monday, April 30th: Bought 15 June 37's at $1.25= $1900 approx
    Thursday, May 3rd: Sold 15 June 37's at $9.30=$13,950
    Gain for the week: $12,050.
    I understand you will not get them all right.  It’s important to ride those winners and as you could tell from my selling price, I sold when the stock went to $28.10, so left a little on the table.  Who can complain.
    Keep the suggestions coming, looking for another jump on your FSLR, one that I have been riding very hard.
    Best regards, Bob

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