Hello...Ruby Tuesday - Momentum Trades : Momentum Trades

Hello…Ruby Tuesday

11:30 am (EST)

The Rolling Stones may have said “goodbye” to Ruby Tuesday (RT, $6.08, up $2.18) but Wall Street is saying “hello” after the company announced better-than-expected earnings today. The popular restaurant chain said it earned $4.8 million, or 9 cents a share, for the quarter. Excluding charges, earnings would have been 26 cents a share. Wall Street was expecting a profit of 11 cents a share.

Sometimes there are trades right in front of your eyes that look good on paper but then you talk yourself out of them. That would be a good thing if the stock or option you were looking at goes the other way but there are times where you kick yourself for not taking gambles. By nature, sometimes I over analyze things instead of going with my gut instincts and that is certainly what I did with Ruby Tuesday over the weekend.

Sunday night in the Weekly Wrap, I did a 5 sentence write-up on the stock after I noticed the company was due to release earnings this week. Here is what I said:

“Ruby Tuesday was trading for under $1 at the beginning of March and is down from a 52-week high of $9.25. There was no way I was going to announce an option trade on a $1 stock but I have watched the move from $1 to $4 because I eat lunch there some of the time. The options that trade on the stock are not that liquid and the easy money was already made. I’m not sure this one goes higher but people have been buying it ahead of earnings. It was up another 13% on Friday but I wouldn’t chase.”

Famous last words, huh? The April 5 calls (RTDA, $1.10, up $0.85) closed at 25 cents yesterday and are up 340% this morning. Oh, well. To be honest I never even looked at the option chain for Ruby Tuesday because I didn’t think they would be as liquid as other option chains and they aren’t. There has only been 130 contracts traded so far on the April 5’s so if I would have bought 20 or 30 contracts, I might have had trouble getting filled. The May 5 calls (RTEA, $1.85, up $1.60) are up 640% but only 75 contracts have traded so far.

Rick Rouse
Rick@OptionsMentoring.com

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