8:30 am (EST)
We have about 30 minutes before the Dendreon (DNDN, $7.30, up $1.00) news comes out but here are some other updates before we get consumed with the news. The stock was down 2 cents in after-hours trading before it was halted for this morning’s pending news.
I covered Goldman Sachs (GS, $128.21, down $1.94) last night and the quote is from yesterday’s extended trading. The company confirmed what most of us already knew which is its plan to pay back the TARP money. Goldman plans on doing a secondary stock offering and wants to pay back the $10 billion it got from the government. It should do well but we could see some weakness due to the dilution. We raised stops on Bank of America (BAC, $11.27, up $0.25), also up in after-hours, so we should be good in case the stock retreats.
Also, Citigroup (C, $4.19, up $0.39) gained 76 cents on Monday and closed at $3.80 but was up another 10% after the bell. Sunday night, I listed four call options plays for the stock and all of them did very well. The stock closed at $3.04 last Thursday and opened at $3.16 before exploding 25% higher yesterday.
The April 3 calls (CDV, $0.32, up $0.25) opened at 35 cents while the April 4 calls (CDW, $0.32, up $0.25) opened at 14 cents. Both easily doubled from their opening prices. The May 3 calls (CEV, $0.93, up $0.54) traded 180,000 and opened at 56 cents. The May 4 calls (CEW, $0.55, up $0.35) opened at 29 cents and traded over 160,000 contracts.
There was easy money to be made in the financials and I hope some of you cashed in with such tremendous gains.
Elsewhere, Shanda Inteactive Entertainment (SNDA, $52.18, up $5.77) continued to surge after I did a quick update on them. The May 50 calls (QKUEJ, $4.82, up $2.82) were trading for $3.40 at the time and added another 35%. I had mentioned the stock was making 52-week highs and sometimes that translates into “blue-sky territory”. It means what it implies. However, I did some more investigating last night and there is more to the story. Shorts have been covering.
For all of those who were “short” Shanda, eventually they will have to buy the shares back to replace the shares they have borrowed which is clearly what they have been doing.
A short sale involves the sale of a stock which is settled with shares lent to the short seller by a third party. You would do a short sale on a stock on the assumption that the price of the stock is going to go down. If this happens, you simply purchase the shares to lock in your profit and to return the shares you have “borrowed”. So all of those investors who sold Shanda short at lower prices are now covering their positions because the stock is moving up and not down as they thought it would.
This may sound complicated but short-interest ratio is simply the number of shares sold short (short interest) divided by the average daily volume of a stock. With this information you’ll also know how long it would take the short sellers of the stock to cover their positions. This is often called the “days-to-cover ratio” because it tells, given the stock’s average trading volume, how many days it will take short sellers to cover their positions if positive news about the company lifts its stock price.
Short interest is a percentage on the amount of shares that are sold “short”. On March 13th, the short interest in Shanda was 10 million shares. At the time, the average daily volume was only one million shares a day so it would have taken 9 days for the shorts to cover. By the end of March, short interest was down to 4.5 million shares and it would only take less than 4 days for the shorts to cover. But this short covering has been going on since February 13th as the average daily volume was only 433,000 at the time which meant it would have taken short sellers nearly 20 days to cover.
Guess where Shanda’s stock was on February 13th? It was at $30.
A couple of weeks later, the company reported earnings climbed 17% and revenue soared 42% as the company lured more paying players to its online role-playing games.
This was a great indicator and short-interest is a good tool to use in helping you find these types of trades. More on this in the trading manual I’m working on but I thought I’d share this with you.
And finally, ValueClick (VCLK, $10.11, up $0.04) came out and said they will report earnings on May 5th. The company is in the online ad space and I’m hoping we get a good report from Google (GOOG, $378.11, up $5.61) which carries ValueClick higher with them.
Check back in shortly for the Dendreon post.
Rick Rouse
Rick@OptionsMentoring.com
