Celgene (CELG, $38.47, down $5.93) came back up for air after sinking below $37 and managed a close above $38. I took some time after the market to study the chart and there is some good and bad in it. The bad news is that the stock set a 52-week low of $36.90 and it is always dicey to buy stocks down at these levels. The other troubling thing is that the stock broke major multi-year support levels when it fell below $40. That could either lead to a free-fall to the $20’s or the stock forms a new base just below $40.
The guidance wasn’t as bad it appeared and Wall Street totally over-reacted (if I had a dime for every time I said that…). Here is the good news. The company has a sweet pipeline of various drugs in different stages and should have $3 billion in cash by the end of this year. Yes, earnings will take a hit but the news has already been factored in. Hopefully.
The long-term doesn’t matter because we are holding the May 40 calls (LQHEH, $2.45, down $4.35) which should have been picked up for around $2.00-$2.25. The April 40 calls (LGHDH, $1.15, down $4.25) traded to a low of 75 cents and I had targeted 80 cents as a possible entry play for a one or two day trade.
So here we are. The April calls were a way to build up cash in your account and even if you just bought 20 contracts at $1.00, you could have sold them at $1.15 and maybe even $1.20 by the end of the day. That would have put $300-$400 in your pocket just like that. When you see things like this, take advantage of it. The action was heavy in Celegene and the option pits were really liquid.
With the May 40 calls, if you had bought 10 contracts at $2.00 which would have cost $2,000; you would have $2,450 in your account. Now, I said I like the trade but I’m also no dummy when it comes to taking profits. If you would have opened and closed both positions today, then your day was done and you walked away with $750-$850.
I didn’t have a stop on the April 40 call options and like I said, it was a one, two day trade. So if the call options fall back make sure you get out with a profit but they really should have been closed yesterday. Again, I like the May 40 trade but we could also get another breakdown in Celgene.
The stop for the May 40’s is $1.00-$1.25 but if we fade, you can always close the trade and take profits.
Thursday will be a huge day. The Financial Accounting Standards Board (FASB) will be meeting before the market opens and could modify the mark-to-market rule. This subject has been hotter than McJayGate in Denver and any good news could give the banks a huge lift. We also have the G-20 going on.
Research In Motion (RIMM, $45.62, up $2.51) jumped 6% and will report earnings after the bell so you will have one last chance to go long or short. The smart money is betting the stock rallies into earnings and then sells off.
Today was the first operating day for the online applications store for the BlackBerry phone and that certainly was the driver behind today’s action. I mentioned three or four different ways to play RIMM on Sunday night but what was interesting was the heavy volume in the April 60 calls (RFYDL, $0.22, up $0.10) which traded nearly 3,500 contracts. There’s your lottery play of the day for Thursday but I ain’t touching it.
Either way, it should be another interesting day on the Street…
Rick Rouse
Rick@OptionsMentoring.com
