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Tuesday, May 5th, 2009
9:20am (EST)
Time sure does fly by when you are on vacation. Good food, great music, and super people. Jazz Fest in New Orleans lived up to its billing as “one of the best times” you will ever have if you love music. Enough said, time to go back to work…
I did manage to find 7 minutes to take a peak at Wall Street and it looks like the market managed to hold its own. There are four trades that I left you with and I will update each one of them sometime today. I’ll start with one this morning and go from there.
ValueClick (VCLK, $11.00, up $0.52)
May 10 calls (QCSEB, $1.25)
Entry Price: $0.75 (4/9/09)
Exit Price: $1.50 (open)
September 12.50 calls (QCSIV, $1.10)
Entry Price: $0.80 (4/9/09)
Exit Price: $1.60 (open)
It looks like my wish was granted for this trade. ValueClick did manage to hold $10 last week and although I wanted the stock closer to $11, we got that with yesterday’s 5% jump. ValueClick reports earnings TODAY after the bell so close the May call options today. We were targeting $1.50 but lets take the risk out of the earnings announcement. It might also be a good idea to close half of the September calls as well.
Looks like some profit-taking will hit the market this morning as futures are pointing towards a lower opening.
Rick Rouse
Rick@OptionsMentoring.com
Tags: ValueClick
Posted in Option Trades | No Comments »
Wednesday, April 29th, 2009
11:00am (EST)
I’m heading out on vacation so here is the breakdown on all of the current trades and what actions to take:
Dendreon (DNDN, $25.05, up $13.24)
May 25 calls (UKOEE, $2.50, up $1.60)
Entry Price: $1.25 (4/17/09)
Exit Price: (open) sold half at $3.75 on (4/28/09)
August 10 calls (UKOHB, $15.70, up $2.20)
Entry Price: $2.20 (4/13/09)
Exit Price: (open) sold half at $14.60 on (4/28/09)
Continue to hold the other half of these positions or close half of the half position you still have open. The May options still have two weeks before they expire and I really think Dendreon can get to $30. However, if we start to slip today we can cash out that other half position. Longer-term, the August options should allow us to profit dollar for dollar as long as the stock continues higher.
I have mentioned that Dendreon was a trade that comes around once every few years and if you didn’t make money the first time around, these trades were opened in the past few weeks. A $10,000 investment spreaded evenly between these two call options could have netted you a cool $30,000 if you had bought 40 of the May 25′s and 20 of the August 10 call options on the recommended date and followed the blog. Of course, that is a big bet to make but I wanted to show you the power of options. To turn $10,000 into $40,000 is a hard task but not if you have the right options.
Note: The call options may have a different symbol than the original ones I have listed. Sometimes the first three symbols can change as option months move closer. The first three letters may reflect “UQB” instead of “UKO” in your brokerage account. My account is showing “UKO” but some of my business buddies are getting the “UQB” quotes in their brokerage account.
MasterCard (MA, $172.70, up $5.16)
May 190 calls (MALER, $3.20, up $0.90)
Entry Price: $1.70 (4/28/09)
Exit Price: $3.40
Sell half at $3.40 and set stops at $2.50. If we continue higher, sell another half on Thursday. MasterCard reports earnings on Friday and you could let the other quarter of the position ride.
Marvel Entertainment (MVL, $30.77, up $1.52)
June 30 calls (MVLFF, $2.35, up $0.65)
Entry Price: $1.05 (4/23/09)
Exit Price: $2.10
Sell half now and set stops at $2.10 on the other half. I told you Marvel had a great shot of breaking $30 and that was done with ease. Continue to enjoy the gains if we go higher. Marvel reports earnings next Tuesday.
ValueClick (VCLK, $10.12, up $0.39)
May 10 calls (QCSEB, $0.75, up $0.20)
Entry Price: $0.75 (4/9/09)
Exit Price: $1.50 (open)
September 12.50 calls (QCSIV, $0.85, up $0.20)
Entry Price: $0.80 (4/9/09)
Exit Price: $1.60 (open)
Continue to hold but I’d like to see ValueClick hold $10 and move closer to $11 by the end of the week.
That is all I have people, good luck with the trades and I’ll be back next Monday. Again, I will try to update these positions if I can but since I am going away, I plan to enjoy it. Send me you emails over the next few days with any thoughts, questions, or comments you may have. I will be reading emails as part of my morning routine.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Dendreon, Marvel Entertainment, MasterCard, ValueClick
Posted in Option Trades, Rick's Account | No Comments »
Sunday, April 26th, 2009
1. Commentary
2. Dendreon’s Big Day
3. Marvel Entertainment is Marvelous
4. Earnings
5. Current Trades
6. Monday Morning Playbook
7. Closing Thoughts
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1. Commentary
It was another whacky week for the market and in the end; the bulls got what they wanted. Once again, the bears started off the week by scaring off the wanna-be bulls and driving the Dow down 300 points on Monday. That day, the Dow finished at 7,841.
That was the first floor of support I had talked about in last week’s Weekly Wrap and then I mentioned 7,600. On Tuesday, we hit a low of 7,699 and that was where the bulls stepped-in. Once we got back over 8,000 (that day), it confirmed this area of support.
However, we didn’t get any significant rally either so it was pretty much a draw between the two sides. The Dow had its 6-week winning streak snapped as it fell 55 points to close at 8,076 while the S&P 500 slipped 3 points and closed at 866. Meanwhile, the Nasdaq actually gained 1.3%, or 21 points, to close at 1,694.
Financial stocks started to rally again on Friday after the preliminary results from the Treasury’s stress test was released. Basically it said the banks had enough cash needed to be “well capitalized”. There weren’t any other specifics really and there were no banks that were named on who may have failed the stress test. The sector was looking weak going into 2pm but the news helped the sector rally sharply. Check at the charts on Friday for 4 or 5 financial stocks and you will see how they bounced. Easy money if you played it for an hour or so.
Earnings played a roll in moving the markets with many companies turning in a report card that was average. The common theme was that most firms beat earnings, but sales and outlooks were cautious or weak. Of course, beating an already lowered bar for earnings wasn’t the problem it was the fact that most companies beat earnings by aggressive cost-cutting.
However, there are hints that “things” are improving but the numbers were baked in the cake and the market had nothing to rally on. We did get the pop in financials which really fueled the rally and the next catalyst on that front is May 4th.
We still have a busy week with earnings and there will be a few economic reports to watch out for but I see another choppy week as we head into May.
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2. Dendreon’s Big Day
This is Dendreon (DNDN, $20.08, down $0.25) week and although we are following a few other trades, this has been “The Week” we have all been waiting for. For those of you who are reading the Weekly Wrap for the first time, I mentioned the stock back on March 19th when it was at $4.
Here are a few highlights from that blog:
“Investing in Biotech stocks can be an exciting, yet, risky investment. Investing in Biotech options takes that same risk/ reward to another level. Assessing how these stocks react to certain news concerning FDA approvals and clinical trials is an art in itself and requires specialized knowledge. However, once you learn the process, there are times where the profits you can make off one trade will be more than most people make in a year.” –
“The homework is essential because options traders live for these types of trades because if you own the right call or put options they can make you as much as 500%-800% on the news. That was not a typo.” —
“Dendreon (DNDN, $4.29 on 3/19/09) has been making headlines lately after reporting better-than-expected earnings but Wall Street is eagerly awaiting the outcome on one of its cancer drugs, Provenge. This is Dendreon’s crown jewel and it targets Prostate cancer which is the second most common cancer affecting men in the U.S. and one of the leading causes of cancer-related death.” –
“Two years ago volume approached 93 million shares that Friday which was more than the 76 million shares the company had outstanding at the time.” —
“The 52-week high for Dendreon is $10 and I would expect that we go higher than that if the drug is approved. This is a high risk trade with the chance of either hitting it big or losing much of the capital you put up if the drug is NOT approved.” -
Those clues are what we are watching for on Tuesday.
One month and one week later, here we are. The move from $4 to $20 was a windfall for many of you and thanks for taking the time to email me your fantastic returns. How good were the returns?
Here were the calls options quotes from March 19th:
May 5 call (UKOEA, $2.22, up $0.22) Bid: $2, Ask: $2.22
May 7.5 call (UKOEU, $1.66, up $0.09) Bid: $1.55, Ask: $1.70
May 10 call (UKOEB, $1.30, up $0.10) Bid: $1.25, Ask: $1.30
May 12.50 call (UKOEV, $1.00, up $0.01) Bid: $0.95, Ask: $1.07
May 20 call (UKOED, $0.50, up $0.05) Bid: $0.40, Ask: $0.50
Here are the quotes as of Friday, April 24th:
May 5 call (UKOEA, $15.10, down $0.10) Bid: $15.10, Ask: $15.20
May 7.5 call (UKOEU, $13.05, up $0.15) Bid: $12.75, Ask: $13.00
May 10 call (UKOEB, $10.70, unch.) Bid: $10.50, Ask: $10.80
May 12.50 call (UKOEV, $8.65, up $0.15) Bid: $8.40, Ask: $8.65
May 20 call (UKOED, $3.55, unch.) Bid: $3.55, Ask: $3.60
As you can see, those returns are 700%-800%. The April call options returned upwards of 2,500%.
I have painted this picture to perfection but I don’t mention these returns to stroke my ego. I mention them for protection. The May 20 calls traded as high as $7.30 and I advised many of you to take profits on at least half of your positions or close them out and roll them into the August calls which we are still holding. I also rolled into some higher May options but the point is you shouldn’t risk everything or all of your profits hoping the stock zooms to $50.
In options trading we have to manage our portfolio and adjust for the risks. The homerun trades we make like this one can still go higher but now that the news is out we also can’t be stupid.
For instance, I had one person email me and said they bought 2 of the April call options and spent $80. When the stock popped to $22, they sold and had $1,900 in their account. Now, if someone took all of their profits from this one trade and rolled it all into another and the news was negative come Tuesday, they could lose most of their investment if Dendreon tanks back below $5.
I honestly can’t tell you what happens from here or where the stock will trade this week but I can try. Of course, I have told you about the short interest (20% of the float) and have talked about the risks from here on out. I will try and outline what I think might happen but realize these are just “educated” guesses.
There will be a ton of coverage over the next few days and you will likely be able to catch it on many of the news channels or over the internet. The stock held $20 all week and its high was $20.94 while the low was $18.51 last Monday. I expect that to change this Monday as investors try to get in before the big announcement on Tuesday.
On Tuesday, I have a pretty good feeling the stock gets “halted”. Okay, what does that mean, right? A trading halt is when a stock cannot trade due to pending news or news that was released. There are other reasons that trading can be halted such as order imbalances, earthquakes, or terrorist’s attacks. This one is news related obviously.
Dendreon will make the results available for Provenge at the American Urological Association’s (AUA) conference shortly after 2pm (EST) so we could get halted before then or even all day. Trading will probably resume on Wednesday.
The key point here is this. And this is very important. From my understanding, during a halt, you can still cancel open orders AND options may still be exercised. Check with your broker but if the stock is halted and you are in a situation to where this benefits you, then you have options that might help you.
Dendreon was halted on April 13th right after the market closed and the next day is when we got the big jump from $7 to $22. The stock was also halted on October 6th, 2008 at 7am, before the market opened.
That day the stock opened at $5.20, hit a high of $10 and closed at $6.93. Volume was 35 million. On April 14th, we saw 65 million shares trade hands. This week I expect to hit 100 million when trading gets underway after the news.
I would love to see us get to $25 before the stock is halted. Then, hopefully, the news comes in way above the needed “22%” and we get a number in the high 30% range of low 40%’s. Remember, this drug has data that goes back six years so we could get some impressive verbiage when the news is released.
That may get the stock to $30 if we aren’t at $25 before the news. If the stock stays at $20 then I’m averaging a 50% pop. That is where my initial $30 target comes from but if the stock is at $25 before it is halted, then that gets us to $35-$37. The icing on the cake would be the short-squeeze that could kick in which could get really interesting as Dendreon bears throw in the flag or raise the white towel.
In any event, it will be a historical day. I have been mentioning protection and you could use the May 10 puts (OKOQB, $0.56, up $0.11) in case this has all been a smoke-and-mirror show by Dendreon.
If the news is negative and Provenge fails to live up to the hype, then these calls will soar if Dendreon heads back below double-digits. If the stock tumbles to $5 then these calls would be worth $5 or 10x the value they are at now.
I don’t think Dendreon will let us down but it is really, really…really cheap insurance. It reminds me of those flood insurance commercials where the lady cries “but I don’t even live near the water” as a flooded house is shown. I think there would also be a bevy of lawsuits filed with the SEC based on the CEO’s comments just a few weeks ago if this drug, Provenge, is not approved.
I don’t have insurance, yet, because I have been a Dendreon bull for nearly two years but that doesn’t mean I won’t pick up some on Monday. That homework from two years ago finally paid off again and there is nothing more gratifying then making an option trade that returns that much of a percentage.
I’ll be here all week providing updates in the blog and make sure you check for updates by going to: Blog.OptionsMentoring.com
Full Disclosure: I own Dendreon call options.
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3. Marvel Entertainment is Marvelous
On Thursday, I gave regular readers of the blog a sneak preview on a Marvel Entertainment (MVL, $28.40, up $0.46) trade. We all know Marvel and the company is doing some good things. This Friday, the release of Wolverine is due out and I have already checked…demand is strong. Opening weekend tickets are selling faster than a Jay Cutler jersey in Chicago and you can bet when numbers are released, this movie will easily be number one. I’m not sure if it duplicates the success of Iron Man but the buzz is enormous.
This play isn’t on the strength of Marvel’s balance sheet but on the momentum leading into next week. Analysts aren’t expecting a pop in numbers until 2010 as they have pegged a 50% drop in EPS (earnings per share) for 2009. However, Marvel will now launch the summer box office season for three years in a row, from 2010 through 2012 and there are a slew of blockbusters on the way, including Iron Man 2, SpiderMan 4, Thor, The First Avenger: Captain America and eventually, The Avengers.
The box office receipts will be in the billions for these films and don’t forget the licensing fees, their publishing division, and its move into animated television production. And their character library remains virtually untapped. That is the future and if I bought stocks, I would buy Marvel if I wanted to own it for the next 5-10 years.
I profiled the June 30 call options (MVLFF, $1.30, up $0.25) at $1.05 and I was looking for a 25%-50% return. The first part of that goal has already been met. I’m still like the trade but it is only a short-term trade. The company reports earnings on May 5th, which is Tuesday, the day after the box-office numbers are released.
I would like to be out of the trade before the earnings announcement and see the stock make a run to $30 this week or the day the numbers are released.
Stops are set at 50 cents for those of you who got in last week. If the calls trade lower, I like positions at original prices but confirm an uptrend before getting in.
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4. Earnings
Monday: Aaron Rents (AAN, $28.66, up $0.51), Baidu (BIDU, $217.54, up $5.04), Corning (GLW, $15.33, up $0.21), Emulex (ELX, $10.31, up $0.0.29), Energizer (ENR, $57.69, up $3.87), Humana (HUM, $27.36, down $0.10), Olin Corporation (OLN, $14.41, up $0.85), Plum Creek Timber (PCL, $36.35, up $1.59), PrePaid Legal (PPD, $33.17, up $0.75), Travelzoo (TZOO, $7.10, up $0.33), Valero Energy (VLO, $21.68, up $0.39) and Verizon (VZ, $31.00, unch.).
Tuesday: Advent Software (ADVS, $32.78, up $1.08), American Ecology (ECOL, $16.51, up $0.36), Bristol-Myers Squibb (BMY, $20.10, down $0.07), Buffalo Wild Wings (BWLD, $41.84, up $0.05), Carter’s (CRI, $22.46, up $0.62), Deutsche Bank (DB, $55.67, up $2.44), DreamWorks Animation (DWA, $18.84, up $0.47), E*TRADE Financial (ETFC, $2.48, down $0.06), Jacobs Engineering Group (JEC, $45.66, up $1.11), Lazard (LAZ, $32.23, up $1.25), Massey Energy (MEE, $13.64, up $0.76), optionsXpress Holdings (OXPS, $13.80, up $0.01), Panera Bread (PNRA, $63.75, up $1.30), Pfizer (PFE, $13.17, down $0.11), Trimble Navigation (TRMB, $19.55, up $0.37) and United States Steel (X, $29.03, up $2.00).
Wednesday: Aetna (AET, $23.96, down $0.14), Aflac (AFL, $28.62, down $0.04), Akamai Technologies (AKAM, $19.48, down $0.10), Baker Hughes (BHI, $35.46, up $1.88), Barrick Gold (ABX, $30.80, up $1.31), Citrix Systems (CTXS, $25.84, up $0.76), Digital River (DRIV, $34.42, up $0.94), Express Scripts (ESRX, $58.45, down $0.78), First Solar (FSLR, $147.46, up $3.96), General Dynamics (GD, $49.18, down $0.32), Jones Apparel Group (JNY, $7.47, up $0.58), NutriSystem (NTRI, $14.67, up $0.12), O’Reilly Automotive (ORLY, $37.72, down $0.74), Odyssey Healthcare (ODSY, $8.95, up $0.42), Qwest Communications (Q, $3.51, down $0.04), Starbucks (SBUX, $13.51, up $0.15), Time Warner Cable (TWC, $27.27, up $0.14) and Wyeth (WYE, $42.10, down $0.41).
Thursday: Ariba (ARBA, $9.21, up $0.15), Callaway Golf (ELY, $7.47, up $0.13), Camden Property Trust (CPT, $28.49, up $2.07), Celgene (CELG, $39.86, up $0.41), CIGNA, (CI, $19.58, up $0.01), Comcast (CMCSA, $13.89, up $0.28), Domino’s (DPZ, $8.38, up $0.46), Expedia (EXPE, $11.24, up $0.01), ExxonMobil (XOM, $66.57, up $0.86), Kellogg (K, $38.94, down $0.17), McAfee (MFE, $38.31, up $1.32), MetLife (MET, $29.25, up $1.05), Patriot Coal (PCX, $5.13, $0.50), Procter & Gamble (PG, $49.51, up $0.19), Safeway (SWY, $20.15, up $0.18), Starwood Hotels & Resorts (HOT, $20.82, up $0.88), Strayer Education (STRA, $181.97, up $9.21), Timberland (TBL, $15.03, up $0.18) and Viacom (VIA, $20.74, up $0.82).
Friday: Allergan (AGN, $47.08, up $0.27), Chevron (CVX, $66.60, up $1.07), Dean Foods (DF, $19.80, up $0.23), MasterCard (MA, $173.09, up $7.84), Simon Property Group (SPG, $50.65, up $2.24) and Washington Post (WPO, $422.00, up $5.30).
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5. Current Trades (Friday’s closing price)
Dendreon (DNDN, $20.08, down $0.25)
May 25 calls (UKOEE, $1.70, down $0.05)
Entry Price: $1.25 (4/17/09)
Exit Price: (open)
Return: 36%
August 10 calls (UKOHB, $10.75, down $0.25)
Entry Price: $2.20 (4/13/09)
Exit Price: $5.00 (open)
Return: 389%
There is not much more I can say about Dendreon that I haven’t already covered. I did spend a lot of time on their website over the weekend and can’t wait to see what the week holds. Think about some protection though. Even if you took a little of the profits from the first time around, it’s a good idea to have some just in case. Also, there would be nothing wrong in selling a little of the August position if you feel a tightness in the stomach.
Marvel Entertainment (MVL, $28.40, up $0.46)
June 30 calls (MVLFF, $1.30, up $0.25)
Entry Price: $1.05 (4/26/09)
Exit Price: $1.50
Return: 24%
ValueClick (VCLK, $9.90, up $0.15)
May 10 calls (QCSEB, $0.65, unch.)
Entry Price: $0.75 (4/9/09)
Exit Price: $1.50 (open)
Return: -13%
September 12.50 calls (QCSIV, $0.75, down $0.05)
Entry Price: $0.80 (4/9/09)
Exit Price: $1.60 (open)
Return: -6%
I’m starting to lose faith in this trade as the stock is really having trouble staying above $10. The company announces earning on May 5th and I was hoping to be out of the trade before then. Stops are set at half our entry prices.
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6. Monday Morning Playbook
I lot of attention will be on Dendreon over the next few days and one stock that could piggy-back the success of a Provenge approval could be Cougar Biotechnology (CGRB, $35.30, up $0.30).
The company is developing its own prostate cancer drug, Abiraterone, but the one thing that worries me is the lack of big volume. The average daily volume is only 100,000 while Dendreon averages 5 million and climbing.
I don’t know Cougar’s story at all because it is not a stock I actively follow. The shares have rallied though, from a low of $22 since the start of March and appears poised to make a run at its 52-week high of $40.
I’m not sold on the trade but I did notice there was 200 contracts of the May 40 calls (QBHEH, $0.55, unchanged) traded on Friday. The bid and ask on these calls is wide enough to drive a truck through making it another reason I don’t like the trade. The closing bid was 75 cents while the ask was $1.05. Even if you “split” the bid/ask and got in at 90 cents, you still get more bang for the buck with Dendreon.
Basically, I just wrote a bunch of hot air but hopefully you get a feel for how to analyze a trade. I thought I liked it when I was doing the research but there are too many other risks that I don’t like about Cougar.
I have been watching MasterCard (MA, $173.09, up $7.84) which reports earnings on Friday. The stock jumped nearly 5% before the weekend on the stress test news I had mentioned in the opening commentary. There was some action in the May 190 calls (MALER, $2.95, up $1.20) as they added 70% for the day. The calls opened at $1.95 and were trading at $1.70 before the 2pm news. That was the opportunity I was telling you about by playing the financials for a hour or so…
Mastercard jumped $20 the last time they reported earnings, rising from $140 to $160. The stock is trading at half its 52-week high of $320. I would love to get the May 190′s for under $2.25, maybe even $2, but that won’t happen unless the stock comes down a little.
If you can in for $2 and under, confirm an uptrend again before jumping in. Since it is an earnings play, the trade carries more risk than others and we may not even be able to get in. The other tricky part is that I will be away on Thursday and Friday and I don’t start new positions while going on vacation.
So, basically, I don’t like anything new this week because I won’t be able to follow the trade and more importantly, I won’t be able to update you about where we stand.
However, watch Buffalo Wild Wings (BWLD, $41.84, up $0.05) and Jacobs Engineering Group (JEC, $45.66, up $1.11). I think Buffalo could move higher but the Jacobs Engineering May 50 calls (JECEJ, $1.10, up $0.30) could get interesting if they fall below $1.00. Just throwing a couple more names out there for you to do further research on…
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7. Closing Thoughts
There is still plenty of volatility in the market and this week wraps up the month of April. I have been mentioning how I thought we would rally into May and then fade
So we got a mixed bag last week with earnings. The bulls got what they wanted by holding support while the bears seem to be waiting for the perfect opportunity to strike. The bears presence is still there which is causing the bulls to look over their shoulders.
The support levels held and with the month of May on the horizon those could be tested. Either that, or we stay stuck in a trading range. I just don’t see another rally in the cards unless the news about the banks on May 4th provides another catalyst.
I’ve been mentioning the old adage “sell in May and go away” which is exactly what I’ll be doing. There will not be a Weekly Wrap next week as I will be “away” for a few days starting on Thursday. I’ll be heading down to New Orleans for some R&R catching up with the best the music world has to offer at Jazz Fest.
It’s kind of neat how the Dendreon news will be out before I go but whatever happens, happens. Most of you made some really good returns on the first move from $7 to $22 and hopefully you rolled some of the position out into the August call options after the first pop while leaving a little on the table with the May calls. The returns have been incredible and here’s to a move above $30….CHEERS! And Good Luck!
Rick Rouse
Rick@OptionsMentoring.com
Tags: 3. Marvel Entertainment, Buffalo Wild Wings, Cougar Biotechnology, Dendreon, Jacobs Engineering Group, MasterCard, options blog, Provenge, ValueClick
Posted in Company Commentary, Earnings, Financial Stocks, Option Trades, Rick's Account, Sectors, Stock Earnings, Weekly Wrap | No Comments »
Sunday, April 19th, 2009
1. Commentary
2. Dendreon’s Next Move
3. Olin – Under the Radar
4. Earnings
5. Current Trades
6. Monday Morning Playbook
7. Closing Thoughts
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1. Commentary
The market extended its winning streak to six straight weeks although the gains were marginal. Still, the streak was in jeopardy after the pounding we got on Tuesday and part of Wednesday as the Dow slipped below 8,000. However, we got a turnaround late in the day on Wednesday that carried through for the rest of the week. At one point on Friday, the Dow hit a high of 8,250.
The bears showed their faces after Goldman Sachs (GS, $120.60, down $0.59) and Intel (INTC, $15.60, down $0.29) reported earnings and both stocks fell hard following the announcements. However, both stocks ended only slightly down from where they started the week despite reporting stellar profits. Goldman hit $130 on Monday, then fell to $113 on Tuesday and closed above $120 everyday afterwards. Intel started the week off at $15.98.
With April options expiring on Friday, I thought we would see more volatility then we did. I used “option expiration week” to show you how to make some incredible gains using cheap out-of-the-money options. We got into the Goldman Sachs April 140 calls on Monday morning and were out by the afternoon for a 229% profit. The calls were $20 out-of-the-money and the options were trading for 70 cents. Our exit was $2.30.
We rode the Intel April 17 calls from 16 cents to 32 cents for a quick 100% return and there were four Citigroup (C, $3.65, down $0.36) trades that did rather well. The Citigroup April 3 and 4 call options returned 257% and 333% respectively. Overall, there were nine trades that were profiled last week for this special event and all of them returned over 100%. Now that’s making money.
For the week, the Dow added 47 points to finish at 8,131, up 0.6% for the week. As far as the other indexes, the Nasdaq added 20 points, or 1.2%, and finished at 1,673 while the S&P 500 was up 1.5%, or 13 points, and closed at 869.
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2. Dendreon’s Next Move
It was a great week for Dendreon (DNDN, $17.99, up $0.96), a stock I have been talking about for a month, after they gave the market some details concerning its drug, Provenge. Although we didn’t get any numbers concerning the survival rate, the company’s CEO delivered an upbeat message which was enough to lift the stock from $7 to over $22 last Tuesday.
Many of you emailed to thank me for the trade and I was glad that some of you took my advice. The April 10 call options soared from a closing price of 20 cents on Monday to over $11.00. That folks is a 2,650% return. Incredible.
When I first talked about the trade back in March I had said it was one of those trades that comes around once or twice a year and it was by far, the biggest winner I have profiled this year. My point is that you shouldn’t always expect these kinds of returns because they just don’t happen.
When the news came out, you should have sold all of your position because the April calls were at their highest point on Tuesday. I also suggested you could roll positions out until August by using the August 10 calls (UKOHB, $9.30, up $1.35 which were going for $2.20 last Monday. They are up over 300%.
I also recommended the May 25 calls (UKOEE, $1.75, up $0.50) on Friday morning at $1.25.
Naturally, your next question is “where is the stock headed”?
Two years ago when we went through this same process, the stock hit a high of $25. That is my first target. However, things are different this time. I don’t think the company’s CEO comes out and says the things he does without the survival data being stronger than what it is. If that were the case and the data isn’t as revealing then the stock could get hammered.
It’s still a crapshoot on where the stock will trade and technical charting does not help. This stock is news driven and it is impossible to get a feel on the daily gyrations that it makes.
If the news is so unbelievable, then there is a chance we go higher than $25. The bottom line is that approval of the drug could still be a long wait but there could be the possibility of a larger drug company making a pitch for Dendreon.
Of course, this is all speculation on my part but I do think we head higher from here. The big date is set for next Tuesday and I still want to be in Dendreon when that news comes out. Is it risky? You bet.
It’s always dangerous to go back to the well after such a big move in a stock but I’m still thirsty. Obviously, don’t go overboard with the May 25’s if you do decide to go long and you could always pick up a few cheap out-of-the-money put options for protection. The May 10 puts (OKOQU, $0.39, down $0.08) could be used just in case the news isn’t all that rosy.
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3. Olin – Under the Radar
I stumbled upon Olin (OLN, $15.97, down $0.01) over the weekend in my quest for another profitable option trade.
The main thing you need to know about Olin is that is basically has two businesses. One is its chemical business (chlorine…think pools) and the other is ammunition. I recently did a write-up on Smith & Wesson (SWHC, $6.61, up $0.12) and profiled an option trade that doubled in 10 days back in early March.
I’m not sure if lightning will strike twice but there is a chance that Olin could be that bolt.
The company’s Winchester segment is the part of the business that has me stoked. In case you haven’t heard, there has been a major shortage of ammo and demand is at a feverish pitch. Some guns shows are only allowing customers to buy two boxes per person. The price of guns has nearly doubled in a year on some models and you can bet ammunition has followed suit.
The chemical business had weighed on Olin’s share price up until March which is when this “ammo shortage” started. Sure enough, when I looked at the chart, the stock started its move from $10 to current levels which is about a 60% pop. Naturally, some of that has to do with the market moving up for five-straight weeks but is there something else here? Maybe.
In January, when the company reported its 4Q earnings, it said it expected 1Q’s profits to come in between 50 and 65 cents a share. On March 18th, Olin raised that guidance to 60-65 cents a share. That means they are expecting earnings at the higher end which could also mean a surprise.
Since they have given guidance and then updated that guidance again, that means its Winchester unit is doing really well. In fact, Olin had this to say when it raised guidance: “Demand in our Winchester business has remained strong and we now expect Winchester to achieve a record level of quarterly earnings in the first quarter”…
Bingo. I like the sound of that but I don’t like the chemical Gremlin that could affect the trade. In any event, instead of doing a full position on this trade, maybe do half positions. Given the punishment stocks have gotten for actually beating earnings recently, this trade carries those same risks.
However, this is a low-profile trade so hopefully Wall Street doesn’t catch on to this one. I’m pretty sure there aren’t that many analysts that cover the stock so we should be good. I’m watching the May 15 calls (OLNEC, $1.60, unchanged) and the May 17.50 calls (OLNEW, $0.50, down $0.05). Set a limit price to enter the 15′s at $1.20 and the 17.50′s at 30 cents.
The chart shows strong resistance at $20 and it is clearly visible. The ideal situation would be a bounce from these levels back up to $20 before earnings on April 28th. Then we could get out before the event. If the call options trade higher from here and we don’t get filled Monday or Tuesday then cancel the trade.
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4. Earnings
Monday: Bank of America (BAC, $10.60, up $0.26), Boston Scientific (BSX, $9.02, down $0.03), Eli Lilly (LLY, $33.75, up $0.48), Halliburton (HAL, $18.78, up $0.21), Hasbro (HAS, $27.91, up $1.72), International Business Machines (IBM, $101.27, down $0.16) and Texas Instruments (TXN, $17.97, up $0.17).
Tuesday: Bank of New York Mellon (BK, $30.22, down $0.99), BlackRock (BLK, $135.92, down $0.68), Brinker International (EAT, $19.33, up $0.55), Broadcom (BRCM, $22.93, down $0.13), Capital One Financial (COF, $17.85, down $0.01), Caterpillar (CAT, $32.29, down $0.42), Coca-Cola (KO, $45.02, down $0.08), Cree (CREE, $26.91, up $0.04), Gilead Sciences (GILD, $44.69, down $0.16), Lockheed Martin (LMT, $76.94, down $0.64), Merck (MRK, $25.73, down $0.12), Norfolk Southern (NSC, $37.79, up $0.57) and Yahoo (YHOO, $14.39, down $0.04).
Wednesday: Altria Group (MO, $16.99, up $0.01), Apple (AAPL, $123.42, up $1.97), Chipotle Mexican Grill (CMG, $79.25, up $0.24), eBay (EBAY, $14.39, down $0.02), F5 Networks (FFIV, $26.70, up $0.09), Freeport-McMoRan (FCX, $43.40, down $0.34), Kimberly-Clark (KMB, $50.24, up $0.46), Qualcomm (QCOM, $40.98, down $0.66), St. Jude Medical (STJ, $36.20, up $0.44), VMware (VMW, $30.70, up $0.51) and Wells Fargo (WFC, $20.26, up $0.81).
Thursday: Amazon.com (AMZN, $78.05, up $0.80), American Express (AXP, $21.81, up $1.12), Amgen (AMGN, $47.07, down $0.11), Black & Decker (BDK, $33.53, up $0.22), Cheesecake Factory (CAKE, $14.33, down $0.32), ConocoPhillips (COP, $40.17, p $0.38), EMC (EMC, $12.81, down $0.05), Juniper Networks (JNPR, $18.49, down $0.70), Microsoft (MSFT, $19.20, down $0.56), Netflix (NFLX, $48.83, up $0.56), PepsiCo (PEP, $52.13, up $0.17), PNC Financial Services (PNC, $41.60, up $2.54), Potash (POT, $86.77, down $0.55), Rambus (RMBS, $10.20, unch.), Raytheon (RTN, $42.51, down $0.77), Union Pacific (UNP, $48.29, up $1.11) and Zimmer Holdings (ZMH, $42.96, up $1.56).
Friday: 3M (MMM, $53.81, down $0.95), Arch Coal (ACI, $14.89, up $0.25), Ford Motor (F, $4.00, down $0.16), Honeywell (HON, $31.49, unch.), Schlumberger (SLB, $46.57, up $0.57) and Xerox Corporation (XRX, $5.92, up $0.17).
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5. Current Trades
Dendreon (DNDN, $17.99, up $0.96)
May 25 calls (UKOEE, $1.75, up $0.50)
Entry Price: $1.25 (4/17/09)
Exit Price: $1.75 (open)
Return: 40%
August 10 calls (UKOHB, $9.00, up $1.05)
Entry Price: $2.20 (4/13/09)
Exit Price: $5.00 (open)
Return: 309%
The last thing I said Friday was to start small positions if you are already out of the other Dendreon trades. The August options should have been picked up on Monday when the stock was gaining another $1 and volume was surging. I still think we have a good shot at the mid $20’s when the company presents its research at a conference on April 28. The CEO’s body language convinced me that the stock was going higher. You can check out the interview on YouTube in case you missed it. There is no stop on the May calls and a $5 stop on the August calls.
International Business Machines (IBM, $101.27, down $0.16)
IBM May 110 calls (IBMEB, $1.15, down $0.10)
Entry Price: $1.00 (4/16/09)
Exit Price: $2.00 (open)
Return: 15%
We got into this position on Thursday before Wall Street started talking about next week’s earnings so we got and early jump ahead of the bulls who were buying on Friday. The calls traded to a high of $1.25 but pulled back slightly before the close. IBM announces earnings after the bell on Monday. Check the blog sometime during the day for an update.
NetApp (NTAP, $17.59, down $0.38)
May 17.50 calls (NULEW, $1.15, down $0.35)
Entry Price: $1.10 (4/9/09)
Exit Price: $2.20 (open)
Return: 5%
May 20 calls (NULED, $0.30, down $0.20)
Entry Price: $0.40 (4/9/09)
Exit Price: $0.80 (open)
Return: -25%
NetApp made a run at $18 Thursday and Friday but faded by the closing bell. The May 17.50’s traded to a high of $1.50 while the May 20’s traded to a high of 55 cents. I was hoping the call options would hold up and hopefully we bounce back this week. Set stops at 55 cents for the 17.50’s and which point you would also close the 20’s if it were hit.
ValueClick (VCLK, $10.02, up $0.21)
May 10 calls (QCSEB, $0.80, up $0.15)
Entry Price: $0.75 (4/9/09)
Exit Price: $1.50 (open)
Return: 7%
September 12.50 calls (QCSIV, $0.80, unchanged)
Entry Price: $0.80 (4/9/09)
Exit Price: $1.60 (open)
Return: 0%
ValueClick traded above $10 last Monday morning and struggled the rest of the week to get back there. Stops are set at half our entry prices.
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6. Monday Morning Playbook
There are a couple of trades I’d like to get into Monday morning. One is Amazon.com, the other is Yahoo. The market has been in a strong uptrend and I like Amazon on the long side and, for protection, I like Yahoo. Over the past few weeks I have profiled mostly call options and that has worked. But it is never a bad idea to have some protection in case the market does fall back.
Having said that, these two companies have clearly gone in opposite directions. Last week, I went out of my norm and recommended a number of profitable plays on option expiration week. We used cheap “out-of-the-money” options and captured triple-digit returns in a matter of a day or two. Although very profitable, you would have had to follow me 24/7 to keep up with the activity we had last week. Kidding, but I was busy in the blog updating the action.
This week will be pretty much the same so check the blog daily. I usually post once before the market opens (9:00am) and once or twice between 10am and 2pm. Sometimes I’ll post after the market closes. All times are EST. The blog can be found by going to:
Blog.OptionsMentoring.com
As far as Amazon.com, they will be reporting earnings on Thursday. We were very profitable playing the April 80 calls on Amazon from March 27 through April 3. We got into these calls at 90 cents and we were out when they hit $2.35 for a 160% return.
The stock has held up extremely well even with the “downgrade” bombs being dropped on it weekly. One brokerage firm issued a “sell” rating on the stock last Wednesday which pushed the shares down $4 that day to a low of $73.50 but by Friday, Amazon’s share price was pushing $80 again.
The stock continues to turn heads and Wall Street analysts are growing leery of its lofty share price. The company surprised Wall Street with an unexpected earnings gain last quarter and has gained 50% for the year. However, Amazon is firing on all cylinders right now. It has a hot new product with the Kindle and sales should be strong. Amazon does not disclose sales figures and expect them to beat on this front. Also, Amazon is starting to steal eBay’s lunch money by focusing on newer items and offering free shipping.
The 52-week high for the stock is $91.75.
So do we get there? There are some risks with Amazon’s numbers and maybe the shares can get into the $80′s before earnings. We have four days before then so try to get the May 90 calls (ZQNER, $1.38, down $0.05) on Monday morning shortly after the market opens. If the calls are lower when we open then try and target $1.30 or less as an entry point. If the call options open higher, don’t pay over $1.50 for them.
With Yahoo, they announce earnings on Tuesday. The company is still a mess and it’s hard to short a stock or buy puts when there has been some momentum in a stock. Additionally, there is a “whisper number” of 10 cents a share being floated which would beat estimates by a penny.
This is one of those “gut feeling” calls, or should I say puts, that I have going into this week. For what it is worth, the May 14 puts (YHQQP, $1.04, up $0.01) could make a quick double if Yahoo fails to impress the Street. Even if Yahoo announces something special, the position has a lot of time to take shape in case Yahoo powers higher from here.
Try to get into the put options for under a $1.00 but do not pay over $1.10 for them.
There may be a few more plays this week but we have our fingers in a lot of pies right now with our other open positions. I try not to hold more than three positions at a time, personally, but there have been a lot of good trading opportunities lately.
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7. Closing Thoughts
Last week I spent some time talking about trends and the current market environment. The “dip” that so many talking heads and analysts are talking about hasn’t come (yet) and more are piling on calling for a correction. Of course you are going to look good if you call for a pullback after we have rallied for six straight weeks but many on Wall Street have said the rally was done three weeks ago.
Last week I went out on a limb and said that we could still go higher with a pullback in May but that could come sooner, it might not come at all, or it could come this week. I could care less because when it does we will switch gears. But for now the trend has been our friend.
We saw a lot of companies beat earnings last week, sell-off, then we watched the stocks bounce back or hold steady after an initial sell-off. There were a few stocks that powered higher as a result of good earnings and the fact that the market held up along with the major stocks of the companies that reported was another bullish sign.
So far, over 50 companies in the S&P 500 have reported earnings and over 30 have beaten Wall Street’s expectations. This means that 60% of the companies reporting are beating their numbers. Granted, the bar has been lowered but this is also another bullish sign.
The start of the week was not all that great but the market held support as the bears roamed around through Wednesday. The Dow held at 7,800 (7,600 is further support) and the S&P 500 held 825 (800 is floor support). The real story is the Nasdaq which is now up 6% YTD. Tech has been leading us higher and for now that trends remains in tact.
This week will be another huge test for the market because we will get the bulk of the earnings announcements and a key housing report. Existing Home Sales come out Thursday and Durable Goods Orders will be released on Friday.
If IBM can get the ball rolling on Monday then we could see the market extend its winning streak to seven straight weeks. The January high for the S&P 500 is 943. The Dow reached a high of 9,175. At current levels, a 10% move from both would get them right around their highs.
That might be asking a lot and it’s hard to say if we get that much of a pop. With so much on the line it does appear this week will be a true test for both the bulls and bears.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Citigroup, Dendreon, Goldman Sachs, Intel, International Business Machines, NetApp, Olin, Smith & Wesson, ValueClick
Posted in Google, Market Analysis, Option Trades, Stock Earnings, Weekly Wrap, Yahoo / Microsoft | No Comments »
Thursday, April 9th, 2009
8:45am (EST)
Dendreon (DNDN, $6.37, down $0.21) has held above $6 all week after hitting a high of $7.35 on Monday despite numerous “sell” recommendations on the stock. This has killed all of the momentum as talking heads continue to talk negative about the move the stock has made.
By now, the entire world knows Dendreon will talk about its results at the end of the month concerning its drug Provenge, and this is what punished our April 10 calls (UKODB, $0.25, down $0.08). The problem here is that we are running out of time for the April contracts because they expire next Friday, April 17th. The May 7.50 calls (UKOEU, $2.32, down $0.03) have held up rather well so I’m not worried about them.
We entered the April 10′s on March 20th at 40 cents. These calls traded as high as $1.05 last Friday and 90 cents on Monday which were more than a double. I thought Dendreon would have held up better with so much riding on Provenge but the negative “sell” ratings have kept a lid on the shares. At current prices, the position would be closed with a 38% loss. As much as I hate to, we need to close the April calls TODAY. I just don’t think we get a $4 move in Dendreon by next Friday and I’d rather cut my losses instead of losing 100%. We normally target 100% returns and cut losses at 50% for the trades in the blog. I was being stubborn and was going to ride this one out…but I’m sticking to my trading rules and closing the position.
The May 7.50′s were entered at $1.50 and are currently up 57%. I had a larger position in them than I did with the April calls so overall, I’m in the green. There is a slight chance Dendreon says something about Provenge that could propel the stock higher but I’m managing the position to avoid a loss.
We might not get the big, huge returns we were looking for but I still think the stock will trade above $10 by the time the month of May rolls around. If so, the May 7.50′s would still be worth $2.50. It is still a risky trade because we could close everything down and walk away with a profit right now but I’ve been upfront with everyone on the risks involved with this trade.
If you did get into the April options, don’t be scared to sell them. You can always roll the position over into the August 10 calls (UKOHB, $2.10, down $0.05). However, you can wait until next week to pick these up. The August calls will provide us with plenty of time to play Dendreon to the upside. If Dendreon says something really positive by the end of the month, there’s is a chance the FDA could fast-track approval of the drug.
Elsewhere, watch ValueClick (VCLK, $9.44, up $0.54). The stock has been in a strong uptrend and recently broke major resistance at $9. The April 10 calls (QCSDB, $0.15, up $0.05) could be active next week as bulls try to push the stock over $10. The safer play would be the May 10 calls (QCSEB, $0.70, up $0.10) but both will do well if the shares make it over $10. There was also a block of 300 contracts that passed through the tape on the September 12.50 calls (QCSIV, $0.80, unchanged) which also could be a great speculative play.
The Interactive Advertising Bureau recently released some encouraging figures by saying the Internet advertising industry has grown to $23 billion by the end of 2008 (for the US). Wall Street has been worried about the decline in the growth rates but this was the news that has lit a fire under some of these stocks in the sector.
One other interesting note…NetApp (NTAP, $16.63, up $1.66) had some huge option volume yesterday. The stock was up 10% but the April 17.50 calls (NULDW, $0.50, up $0.42) were up 525% as they moved closer to being in-the-money. Nearly 22,000 contracts traded. The May 17.50 calls (NULEW, $1.17, up $0.87) were up 290% and traded 21,000 contracts. The company is making noise as a merger candidate and some investors are even buying the May 20 calls (NULED, $0.48, up $0.38) as 8,000 contracts switched hands. You could roll the dice on the 20′s but the stock is right at its 50-day moving average.
Oh yeah, the Toyota Motors (TM, $75.68, up $2.45) trade was killed at the alter. The April 70 puts (TMPW, $0.70, down $0.55) never had a chance. The only trade we have open is the Dendreon May 7.5 calls going into the weekend and the two aforementioned plays for those willing to participate. It’s been a choppy week but we have been able to make some solid gains with the Celgene (CELG, $40.68, up $0.20) and Las Vegas Sands (LVS, $4.02, down $0.01) trades. Celgene returned many of you between 100%-250% while the Las Vegas Sands trade was a double (100%+).
For the year, the blog has covered 85 option trades with 67 winners and 18 losers. I’ve been keeping track of the option plays I mention in the blog and we should be posting those results soon. When you see the dates for the positions, all you have to do is archive the blog to follow the trade. This will be a good tool to use to help you understand why we got into a trade, why it was successful or why it wasn’t. I also have last year’s results which will be posted as well. Next week will be the one-year anniversary of the blog and many thanks go out to all of you who read me.
The market is closed on Friday and I may not post again today so enjoy the Easter weekend. Be sure to check back here Sunday night or check your inbox for the Weekly Wrap. I’ve got some exciting plays lined up for next week as the bulk of the earnings season gets underway. If you haven’t signed up for the newsletter, enter your email address up on the right of this page. Thanks and if you have any questions or comments, send them to me.
I smell a huge rally today and if the bulls can get us back over 8,000 for the Dow, they could be ready to run next week.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Celgene, Dendreon, NetApp, Toyota Motors, ValueClick
Posted in Market Analysis, Option Trades | No Comments »
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Weekly Wrap for 4/26/09
Sunday, April 26th, 2009
1. Commentary
2. Dendreon’s Big Day
3. Marvel Entertainment is Marvelous
4. Earnings
5. Current Trades
6. Monday Morning Playbook
7. Closing Thoughts
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1. Commentary
It was another whacky week for the market and in the end; the bulls got what they wanted. Once again, the bears started off the week by scaring off the wanna-be bulls and driving the Dow down 300 points on Monday. That day, the Dow finished at 7,841.
That was the first floor of support I had talked about in last week’s Weekly Wrap and then I mentioned 7,600. On Tuesday, we hit a low of 7,699 and that was where the bulls stepped-in. Once we got back over 8,000 (that day), it confirmed this area of support.
However, we didn’t get any significant rally either so it was pretty much a draw between the two sides. The Dow had its 6-week winning streak snapped as it fell 55 points to close at 8,076 while the S&P 500 slipped 3 points and closed at 866. Meanwhile, the Nasdaq actually gained 1.3%, or 21 points, to close at 1,694.
Financial stocks started to rally again on Friday after the preliminary results from the Treasury’s stress test was released. Basically it said the banks had enough cash needed to be “well capitalized”. There weren’t any other specifics really and there were no banks that were named on who may have failed the stress test. The sector was looking weak going into 2pm but the news helped the sector rally sharply. Check at the charts on Friday for 4 or 5 financial stocks and you will see how they bounced. Easy money if you played it for an hour or so.
Earnings played a roll in moving the markets with many companies turning in a report card that was average. The common theme was that most firms beat earnings, but sales and outlooks were cautious or weak. Of course, beating an already lowered bar for earnings wasn’t the problem it was the fact that most companies beat earnings by aggressive cost-cutting.
However, there are hints that “things” are improving but the numbers were baked in the cake and the market had nothing to rally on. We did get the pop in financials which really fueled the rally and the next catalyst on that front is May 4th.
We still have a busy week with earnings and there will be a few economic reports to watch out for but I see another choppy week as we head into May.
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2. Dendreon’s Big Day
This is Dendreon (DNDN, $20.08, down $0.25) week and although we are following a few other trades, this has been “The Week” we have all been waiting for. For those of you who are reading the Weekly Wrap for the first time, I mentioned the stock back on March 19th when it was at $4.
Here are a few highlights from that blog:
“Investing in Biotech stocks can be an exciting, yet, risky investment. Investing in Biotech options takes that same risk/ reward to another level. Assessing how these stocks react to certain news concerning FDA approvals and clinical trials is an art in itself and requires specialized knowledge. However, once you learn the process, there are times where the profits you can make off one trade will be more than most people make in a year.” –
“The homework is essential because options traders live for these types of trades because if you own the right call or put options they can make you as much as 500%-800% on the news. That was not a typo.” —
“Dendreon (DNDN, $4.29 on 3/19/09) has been making headlines lately after reporting better-than-expected earnings but Wall Street is eagerly awaiting the outcome on one of its cancer drugs, Provenge. This is Dendreon’s crown jewel and it targets Prostate cancer which is the second most common cancer affecting men in the U.S. and one of the leading causes of cancer-related death.” –
“Two years ago volume approached 93 million shares that Friday which was more than the 76 million shares the company had outstanding at the time.” —
“The 52-week high for Dendreon is $10 and I would expect that we go higher than that if the drug is approved. This is a high risk trade with the chance of either hitting it big or losing much of the capital you put up if the drug is NOT approved.” -
Those clues are what we are watching for on Tuesday.
One month and one week later, here we are. The move from $4 to $20 was a windfall for many of you and thanks for taking the time to email me your fantastic returns. How good were the returns?
Here were the calls options quotes from March 19th:
May 5 call (UKOEA, $2.22, up $0.22) Bid: $2, Ask: $2.22
May 7.5 call (UKOEU, $1.66, up $0.09) Bid: $1.55, Ask: $1.70
May 10 call (UKOEB, $1.30, up $0.10) Bid: $1.25, Ask: $1.30
May 12.50 call (UKOEV, $1.00, up $0.01) Bid: $0.95, Ask: $1.07
May 20 call (UKOED, $0.50, up $0.05) Bid: $0.40, Ask: $0.50
Here are the quotes as of Friday, April 24th:
May 5 call (UKOEA, $15.10, down $0.10) Bid: $15.10, Ask: $15.20
May 7.5 call (UKOEU, $13.05, up $0.15) Bid: $12.75, Ask: $13.00
May 10 call (UKOEB, $10.70, unch.) Bid: $10.50, Ask: $10.80
May 12.50 call (UKOEV, $8.65, up $0.15) Bid: $8.40, Ask: $8.65
May 20 call (UKOED, $3.55, unch.) Bid: $3.55, Ask: $3.60
As you can see, those returns are 700%-800%. The April call options returned upwards of 2,500%.
I have painted this picture to perfection but I don’t mention these returns to stroke my ego. I mention them for protection. The May 20 calls traded as high as $7.30 and I advised many of you to take profits on at least half of your positions or close them out and roll them into the August calls which we are still holding. I also rolled into some higher May options but the point is you shouldn’t risk everything or all of your profits hoping the stock zooms to $50.
In options trading we have to manage our portfolio and adjust for the risks. The homerun trades we make like this one can still go higher but now that the news is out we also can’t be stupid.
For instance, I had one person email me and said they bought 2 of the April call options and spent $80. When the stock popped to $22, they sold and had $1,900 in their account. Now, if someone took all of their profits from this one trade and rolled it all into another and the news was negative come Tuesday, they could lose most of their investment if Dendreon tanks back below $5.
I honestly can’t tell you what happens from here or where the stock will trade this week but I can try. Of course, I have told you about the short interest (20% of the float) and have talked about the risks from here on out. I will try and outline what I think might happen but realize these are just “educated” guesses.
There will be a ton of coverage over the next few days and you will likely be able to catch it on many of the news channels or over the internet. The stock held $20 all week and its high was $20.94 while the low was $18.51 last Monday. I expect that to change this Monday as investors try to get in before the big announcement on Tuesday.
On Tuesday, I have a pretty good feeling the stock gets “halted”. Okay, what does that mean, right? A trading halt is when a stock cannot trade due to pending news or news that was released. There are other reasons that trading can be halted such as order imbalances, earthquakes, or terrorist’s attacks. This one is news related obviously.
Dendreon will make the results available for Provenge at the American Urological Association’s (AUA) conference shortly after 2pm (EST) so we could get halted before then or even all day. Trading will probably resume on Wednesday.
The key point here is this. And this is very important. From my understanding, during a halt, you can still cancel open orders AND options may still be exercised. Check with your broker but if the stock is halted and you are in a situation to where this benefits you, then you have options that might help you.
Dendreon was halted on April 13th right after the market closed and the next day is when we got the big jump from $7 to $22. The stock was also halted on October 6th, 2008 at 7am, before the market opened.
That day the stock opened at $5.20, hit a high of $10 and closed at $6.93. Volume was 35 million. On April 14th, we saw 65 million shares trade hands. This week I expect to hit 100 million when trading gets underway after the news.
I would love to see us get to $25 before the stock is halted. Then, hopefully, the news comes in way above the needed “22%” and we get a number in the high 30% range of low 40%’s. Remember, this drug has data that goes back six years so we could get some impressive verbiage when the news is released.
That may get the stock to $30 if we aren’t at $25 before the news. If the stock stays at $20 then I’m averaging a 50% pop. That is where my initial $30 target comes from but if the stock is at $25 before it is halted, then that gets us to $35-$37. The icing on the cake would be the short-squeeze that could kick in which could get really interesting as Dendreon bears throw in the flag or raise the white towel.
In any event, it will be a historical day. I have been mentioning protection and you could use the May 10 puts (OKOQB, $0.56, up $0.11) in case this has all been a smoke-and-mirror show by Dendreon.
If the news is negative and Provenge fails to live up to the hype, then these calls will soar if Dendreon heads back below double-digits. If the stock tumbles to $5 then these calls would be worth $5 or 10x the value they are at now.
I don’t think Dendreon will let us down but it is really, really…really cheap insurance. It reminds me of those flood insurance commercials where the lady cries “but I don’t even live near the water” as a flooded house is shown. I think there would also be a bevy of lawsuits filed with the SEC based on the CEO’s comments just a few weeks ago if this drug, Provenge, is not approved.
I don’t have insurance, yet, because I have been a Dendreon bull for nearly two years but that doesn’t mean I won’t pick up some on Monday. That homework from two years ago finally paid off again and there is nothing more gratifying then making an option trade that returns that much of a percentage.
I’ll be here all week providing updates in the blog and make sure you check for updates by going to: Blog.OptionsMentoring.com
Full Disclosure: I own Dendreon call options.
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3. Marvel Entertainment is Marvelous
On Thursday, I gave regular readers of the blog a sneak preview on a Marvel Entertainment (MVL, $28.40, up $0.46) trade. We all know Marvel and the company is doing some good things. This Friday, the release of Wolverine is due out and I have already checked…demand is strong. Opening weekend tickets are selling faster than a Jay Cutler jersey in Chicago and you can bet when numbers are released, this movie will easily be number one. I’m not sure if it duplicates the success of Iron Man but the buzz is enormous.
This play isn’t on the strength of Marvel’s balance sheet but on the momentum leading into next week. Analysts aren’t expecting a pop in numbers until 2010 as they have pegged a 50% drop in EPS (earnings per share) for 2009. However, Marvel will now launch the summer box office season for three years in a row, from 2010 through 2012 and there are a slew of blockbusters on the way, including Iron Man 2, SpiderMan 4, Thor, The First Avenger: Captain America and eventually, The Avengers.
The box office receipts will be in the billions for these films and don’t forget the licensing fees, their publishing division, and its move into animated television production. And their character library remains virtually untapped. That is the future and if I bought stocks, I would buy Marvel if I wanted to own it for the next 5-10 years.
I profiled the June 30 call options (MVLFF, $1.30, up $0.25) at $1.05 and I was looking for a 25%-50% return. The first part of that goal has already been met. I’m still like the trade but it is only a short-term trade. The company reports earnings on May 5th, which is Tuesday, the day after the box-office numbers are released.
I would like to be out of the trade before the earnings announcement and see the stock make a run to $30 this week or the day the numbers are released.
Stops are set at 50 cents for those of you who got in last week. If the calls trade lower, I like positions at original prices but confirm an uptrend before getting in.
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4. Earnings
Monday: Aaron Rents (AAN, $28.66, up $0.51), Baidu (BIDU, $217.54, up $5.04), Corning (GLW, $15.33, up $0.21), Emulex (ELX, $10.31, up $0.0.29), Energizer (ENR, $57.69, up $3.87), Humana (HUM, $27.36, down $0.10), Olin Corporation (OLN, $14.41, up $0.85), Plum Creek Timber (PCL, $36.35, up $1.59), PrePaid Legal (PPD, $33.17, up $0.75), Travelzoo (TZOO, $7.10, up $0.33), Valero Energy (VLO, $21.68, up $0.39) and Verizon (VZ, $31.00, unch.).
Tuesday: Advent Software (ADVS, $32.78, up $1.08), American Ecology (ECOL, $16.51, up $0.36), Bristol-Myers Squibb (BMY, $20.10, down $0.07), Buffalo Wild Wings (BWLD, $41.84, up $0.05), Carter’s (CRI, $22.46, up $0.62), Deutsche Bank (DB, $55.67, up $2.44), DreamWorks Animation (DWA, $18.84, up $0.47), E*TRADE Financial (ETFC, $2.48, down $0.06), Jacobs Engineering Group (JEC, $45.66, up $1.11), Lazard (LAZ, $32.23, up $1.25), Massey Energy (MEE, $13.64, up $0.76), optionsXpress Holdings (OXPS, $13.80, up $0.01), Panera Bread (PNRA, $63.75, up $1.30), Pfizer (PFE, $13.17, down $0.11), Trimble Navigation (TRMB, $19.55, up $0.37) and United States Steel (X, $29.03, up $2.00).
Wednesday: Aetna (AET, $23.96, down $0.14), Aflac (AFL, $28.62, down $0.04), Akamai Technologies (AKAM, $19.48, down $0.10), Baker Hughes (BHI, $35.46, up $1.88), Barrick Gold (ABX, $30.80, up $1.31), Citrix Systems (CTXS, $25.84, up $0.76), Digital River (DRIV, $34.42, up $0.94), Express Scripts (ESRX, $58.45, down $0.78), First Solar (FSLR, $147.46, up $3.96), General Dynamics (GD, $49.18, down $0.32), Jones Apparel Group (JNY, $7.47, up $0.58), NutriSystem (NTRI, $14.67, up $0.12), O’Reilly Automotive (ORLY, $37.72, down $0.74), Odyssey Healthcare (ODSY, $8.95, up $0.42), Qwest Communications (Q, $3.51, down $0.04), Starbucks (SBUX, $13.51, up $0.15), Time Warner Cable (TWC, $27.27, up $0.14) and Wyeth (WYE, $42.10, down $0.41).
Thursday: Ariba (ARBA, $9.21, up $0.15), Callaway Golf (ELY, $7.47, up $0.13), Camden Property Trust (CPT, $28.49, up $2.07), Celgene (CELG, $39.86, up $0.41), CIGNA, (CI, $19.58, up $0.01), Comcast (CMCSA, $13.89, up $0.28), Domino’s (DPZ, $8.38, up $0.46), Expedia (EXPE, $11.24, up $0.01), ExxonMobil (XOM, $66.57, up $0.86), Kellogg (K, $38.94, down $0.17), McAfee (MFE, $38.31, up $1.32), MetLife (MET, $29.25, up $1.05), Patriot Coal (PCX, $5.13, $0.50), Procter & Gamble (PG, $49.51, up $0.19), Safeway (SWY, $20.15, up $0.18), Starwood Hotels & Resorts (HOT, $20.82, up $0.88), Strayer Education (STRA, $181.97, up $9.21), Timberland (TBL, $15.03, up $0.18) and Viacom (VIA, $20.74, up $0.82).
Friday: Allergan (AGN, $47.08, up $0.27), Chevron (CVX, $66.60, up $1.07), Dean Foods (DF, $19.80, up $0.23), MasterCard (MA, $173.09, up $7.84), Simon Property Group (SPG, $50.65, up $2.24) and Washington Post (WPO, $422.00, up $5.30).
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5. Current Trades (Friday’s closing price)
Dendreon (DNDN, $20.08, down $0.25)
May 25 calls (UKOEE, $1.70, down $0.05)
Entry Price: $1.25 (4/17/09)
Exit Price: (open)
Return: 36%
August 10 calls (UKOHB, $10.75, down $0.25)
Entry Price: $2.20 (4/13/09)
Exit Price: $5.00 (open)
Return: 389%
There is not much more I can say about Dendreon that I haven’t already covered. I did spend a lot of time on their website over the weekend and can’t wait to see what the week holds. Think about some protection though. Even if you took a little of the profits from the first time around, it’s a good idea to have some just in case. Also, there would be nothing wrong in selling a little of the August position if you feel a tightness in the stomach.
Marvel Entertainment (MVL, $28.40, up $0.46)
June 30 calls (MVLFF, $1.30, up $0.25)
Entry Price: $1.05 (4/26/09)
Exit Price: $1.50
Return: 24%
ValueClick (VCLK, $9.90, up $0.15)
May 10 calls (QCSEB, $0.65, unch.)
Entry Price: $0.75 (4/9/09)
Exit Price: $1.50 (open)
Return: -13%
September 12.50 calls (QCSIV, $0.75, down $0.05)
Entry Price: $0.80 (4/9/09)
Exit Price: $1.60 (open)
Return: -6%
I’m starting to lose faith in this trade as the stock is really having trouble staying above $10. The company announces earning on May 5th and I was hoping to be out of the trade before then. Stops are set at half our entry prices.
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6. Monday Morning Playbook
I lot of attention will be on Dendreon over the next few days and one stock that could piggy-back the success of a Provenge approval could be Cougar Biotechnology (CGRB, $35.30, up $0.30).
The company is developing its own prostate cancer drug, Abiraterone, but the one thing that worries me is the lack of big volume. The average daily volume is only 100,000 while Dendreon averages 5 million and climbing.
I don’t know Cougar’s story at all because it is not a stock I actively follow. The shares have rallied though, from a low of $22 since the start of March and appears poised to make a run at its 52-week high of $40.
I’m not sold on the trade but I did notice there was 200 contracts of the May 40 calls (QBHEH, $0.55, unchanged) traded on Friday. The bid and ask on these calls is wide enough to drive a truck through making it another reason I don’t like the trade. The closing bid was 75 cents while the ask was $1.05. Even if you “split” the bid/ask and got in at 90 cents, you still get more bang for the buck with Dendreon.
Basically, I just wrote a bunch of hot air but hopefully you get a feel for how to analyze a trade. I thought I liked it when I was doing the research but there are too many other risks that I don’t like about Cougar.
I have been watching MasterCard (MA, $173.09, up $7.84) which reports earnings on Friday. The stock jumped nearly 5% before the weekend on the stress test news I had mentioned in the opening commentary. There was some action in the May 190 calls (MALER, $2.95, up $1.20) as they added 70% for the day. The calls opened at $1.95 and were trading at $1.70 before the 2pm news. That was the opportunity I was telling you about by playing the financials for a hour or so…
Mastercard jumped $20 the last time they reported earnings, rising from $140 to $160. The stock is trading at half its 52-week high of $320. I would love to get the May 190′s for under $2.25, maybe even $2, but that won’t happen unless the stock comes down a little.
If you can in for $2 and under, confirm an uptrend again before jumping in. Since it is an earnings play, the trade carries more risk than others and we may not even be able to get in. The other tricky part is that I will be away on Thursday and Friday and I don’t start new positions while going on vacation.
So, basically, I don’t like anything new this week because I won’t be able to follow the trade and more importantly, I won’t be able to update you about where we stand.
However, watch Buffalo Wild Wings (BWLD, $41.84, up $0.05) and Jacobs Engineering Group (JEC, $45.66, up $1.11). I think Buffalo could move higher but the Jacobs Engineering May 50 calls (JECEJ, $1.10, up $0.30) could get interesting if they fall below $1.00. Just throwing a couple more names out there for you to do further research on…
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7. Closing Thoughts
There is still plenty of volatility in the market and this week wraps up the month of April. I have been mentioning how I thought we would rally into May and then fade
So we got a mixed bag last week with earnings. The bulls got what they wanted by holding support while the bears seem to be waiting for the perfect opportunity to strike. The bears presence is still there which is causing the bulls to look over their shoulders.
The support levels held and with the month of May on the horizon those could be tested. Either that, or we stay stuck in a trading range. I just don’t see another rally in the cards unless the news about the banks on May 4th provides another catalyst.
I’ve been mentioning the old adage “sell in May and go away” which is exactly what I’ll be doing. There will not be a Weekly Wrap next week as I will be “away” for a few days starting on Thursday. I’ll be heading down to New Orleans for some R&R catching up with the best the music world has to offer at Jazz Fest.
It’s kind of neat how the Dendreon news will be out before I go but whatever happens, happens. Most of you made some really good returns on the first move from $7 to $22 and hopefully you rolled some of the position out into the August call options after the first pop while leaving a little on the table with the May calls. The returns have been incredible and here’s to a move above $30….CHEERS! And Good Luck!
Rick Rouse
Rick@OptionsMentoring.com
Tags: 3. Marvel Entertainment, Buffalo Wild Wings, Cougar Biotechnology, Dendreon, Jacobs Engineering Group, MasterCard, options blog, Provenge, ValueClick
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