Don’t shoot the messenger…
Green Mountain Coffee Roasters (GMCR, $67.50, down $0.25) reported earnings after the bell and said profits doubled but they missed Wall Street’s expectations on the revenue side. I kept mentioning to get out of this earnings trade before the closing bell and now you know why…in after-hours trading the stock was down $5.
We did keep a couple of trades open going into earnings and we got a mixed bag from as Cerner (CERN, $65.13, up $0.95) missed the Street’s forecast while Visa (V, $66.78, up $0.48) beat expectations. So here is what we are looking at…
Cerner was down $2.63 to $62.50 in extended trading and the August 70 calls (CQNHN, $1.35, up $0.15) will likely take a beating.
Visa was only off by a $1 after the close and almost held even at one point. However, the August 70 calls (VEHHN, $1.15, down $0.15) still lost a little shine.
Now, this is important. There were stops listed for these two positions and they weren’t hit today but the Cerner’s call options will probably fall below the 65 cents stop. In other words, these call options still have three weeks before they expire so you can cut your losses or hope for a rebound. Go for the rebound.
With Visa, I don’t think the 80 cent stop will be hit but it could.
This is a tough call, no doubt. The thing to remember is that most of my trades DO NOT evolve around earnings announcements but every now and then I shoot the ball. It’s hard to tell people how much risk they should take on or how much money should go into a trade but if you look at the spreadsheet for all of my trades they are usually 10 or 20 lot contracts. In other words, I risk anywhere between $1,000 and $2,000 a trade. If an option is under 50 cents, I might buy 50 contracts. Or, if it is a risky trade I might only do 10 contracts which is $500.
So it depends on what level you want to take your trading to.
Trading around an earnings announcement is always tricky.
Now that I got that off my chest… Ford (F, $7.12, down $0.02) and Microsoft (MSFT, $23.80, up $0.33) have given us some nice returns while Bank of America (BAC, $13.52, up $0.18) wants to keep going higher. And let’s not forget what good fortunes IBM (IBM, $117.02) and Cisco (CSCO, $21.72, down $0.21) have brought to our pockets.
One last thought…Most of you know my “dislike” for Barron’s magazine. We had a few sweet Imax (IMAX, $8.78, down $0.22) trades that were making us some great returns before Barron’s ruined the momentum in the stock.
On June 25th, we went long the July 7.50 calls (IMQGU) at 35 cents and we played the trade like a fiddle. We had set an exit to be out by the July 4th weekend and we were for a profit of 143%. We were out at 85 cents.
Then came the Barron’s weekend article as Imax was setting 52-week highs and the height of the summer movie releases were about to hit.
The September 7.50 calls (IMQIU, $1.55, down $0.20) were at 85 cents in June and were stopped out at $1.00 on July 6th that Monday. As you can see, they have doubled. The December 7.50 calls (IMQLU, $1.90, down $0.05) were at $1.25.
Imax lost more than 10% after that Barron’s article but has since rebounded. I haven’t lost site of Imax and some of you may have kept the December calls open. Congrats.
Keep these on your Watch List but I wouldn’t pull the trigger again right now. Let’s see where they are next week.