September 2009 | Members

 

12:30pm (EST) New Trade!!!

Nike (NKE, $59.50, up $0.50) will report earnings after the bell today and there is heavy volume in the option pits.  The company is expected to report earnings of $0.97 a share, or 6 cents below what the company earned during the first quarter of last year.  The market is pricing in an 8%-10% move in the stock and it looks like the options are confirming that notion.  If so, that will place the stock at $54 or $66.  A Nike October 60 straddle option trade is currently priced at $5.50 which is a good indication of how much the market is expecting the stock to move.

Option traders are bidding up the October 60 calls (NKEJL, $1.65, up $0.05) today as volume stands at 11,000 contracts traded.  Open Interest is currently at 7,000 so this is usually a bullish sign.  If Nike does indeed trade 8%-10% higher on Wednesday then these calls will be worth at least $4 or $5 if Nike is at $64-$65. 

Buy to Open the Nike October 60 calls (NKEJL, $1.65, up $0.05)

Now, to offset some of the loss in case Nike misses their numbers OR inventory levels are high, you can also use the November put options for protection.  Or you can use them straight up if you think Nike will miss their numbers. 

The November 55 puts (NKEWK, $1.10, down $0.25) can be used to hedge this trade.  If Nike falls to $55 then these options should double. 

The cost if you add both options would be $2.75 ($1.65 for the October call options, and $1.10 for the November put options).  If the put options should double then they would be trading at $2.25 which would give you a 50 cent loss from your original entry prices.  The calls will probably drop to a nickel if Nike disappoints. 

The other risk for the trade is if the stock stays flat.

Note:  We were stopped out of the Moody’s (MCO, $21.21, up $2.44) trade today.  We RAISED the stop this morning to 50 cents and there may be some short-covering going into Wednesday’s hearings.  It doesn’t matter how much lipstick you put on Moody’s, it is still a pig and it is not a pretty stock to own.  

 

9:15am (EST)

Current Trades  

United States Steel (X, $46.31, down $0.32)

 January 55 Calls (XAK, $2.55, down $0.31)

Entry Price: $2.55 (9/28/09) 

Exit Target: $3.75-$4.00, lower to $2.55-$3.00 

Return: 0%
Stop: $1.30, raise to $2.25 

Action:  Folks, we got bit by the Goldman Sachs (GS, $182.50, up $3.00) whammy as they downgraded the steel sector on Monday.  I did not see the news until late in the afternoon.  It was just a few weeks ago Goldman loved U.S. Steel and had a price target of $50 for the stock which was hit last week several times.  It seems although production was up like I had mentioned, prices are falling.   

I am normally not this quick to pull the trigger on a trade but Goldman’s words carry weight and that could send the stock back under $45.  As such, raise the stop and lower the exit target.  We may not reach $3 and if you can get out with a small gain or break even, CLOSE the trade.  If the call options get cheaper, we may revisit the story.

Moody’s (MCO, $18.77, down $0.08)

October 17.50 puts (MCOVW, $0.85, down $0.05)

Entry Price: $0.75 (9/24/09) 

Exit Target: $1.00-$1.25

Return: 13%
Stop: 30 cents, raise to 50 cents 

Action:  Short interest is rising in Moody’s and now stands at 11%, the highest since last September.  These put options did trade to $1.00 last Friday and we are still hoping to a run to $1.25.

On Wednesday, there are two hearings scheduled when Congress meets and we should see some action in this stock, hopefully, to the downside.  Now, if we get to $1.25 today, we will have to see what the action looks like so that we can see where the trade stands BEFORE the event. 

There is lot of juicy information that could be forthcoming concerning Moody’s and their rating practices.  One hearing will examine reforming regulation of credit rating agencies while the other hearing is one that was postponed last week.  This is the one we are watching because it concerns a Moody’s internal memo, written by an employee, who has since been suspended.  This was the “spill the beans” memo that could be damaging to Moody’s.

I’ve blasted Moody’s numerous times here on the Blog and this time I hope it’s the straw that breaks the camel’s back this time around. 

Citigroup (C, $4.57, up $0.19)

January 7.50 calls (CAQ, $0.11, up $0.01)

Entry Price: $0.32 (8/28/09)

Exit Target: $0.64

Return: -66%
Stop:  None  

January (2011) 10 calls (VRNAB, $0.42, up $0.03)

Entry Price: $0.60 (8/28/09) 

Exit Target: $1.20

Return: -30%
Stop: None

Action:  Continue to hold.  

Imax (IMAX, $8.80, up $0.13)

March 2010 12.50 calls (IMQCV, $0.25, flat)

Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: -44%
Stop: None 

Action:  Continue to hold.

Sirius XM (SIRI, $0.60, down $0.03)

December 1 calls (QXOLA, $0.05, flat)

Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Return: -67%
Stop: None

Action:  Continue to hold.