October 2009 | Members
NEW TRADE!!! for Monday October 5th:
We had a lot going on Friday and we did not get the fireworks we were expecting. We knew we weren’t getting a rally after 8:30am and once the market opened there was no massive sell-off. That doesn’t mean either one won’t happen soon.
One stock that did extremely well on Friday was Pepsico. The stock opened at $59.12 and continued higher throughout the day. These call options OPENED at 55 cents and hopefully the uptrend continues.
Pepsico (PEP, $60.90, up $2.44)
Buy to Open Pepsico Nov 62.50 calls (PEPKZ, $1.25, up $0.85) up to $1.50.
Place a limit order for $1.30-$1.35 and if the calls open higher than that I still think they are a buy and I like them up to $1.50.
Wait 10-15 minutes after the market opens and see where they are at.
If the stock OPENS LOWER, you don’t have to buy them right away. They may come down to $1.15-$1.20 which would be great, so see how they trade the rest of the morning. If they start rebounding they are a buy up to $1.50.
To be clear, I’m just trying to get you the best price for the options when they open. If the November 62.50’s are at $1.30, get them. If they are at $1.40, I like them. If they are at $1.50, I like them. Anything over $1.50 ruins the parameters of the trade so don’t take the trade if the calls open HIGHER than $1.50.
If they open higher than $1.50 and come back down, they are NOT a buy. The trade will be busted.
Looking at the chart, you will clearly see the potential “breakout” this stock has. A break above $61.75 would be very bullish and could pave the way for a run at its 52-week high of $71.60.
Now, there are a few risks with this trade. The stock rallied 5% on Friday after the company said it was moving forward with its planned acquisitions of its two largest bottlers which worried investors because of their relationships with Dr Pepper Snapple Group (DPS, $28.25, down $0.25). It had been a drag and the news was a relief even if it means dropping The Doctor.
The company reports earnings on Thursday which I did not know until doing the research for the trade. I figured they would be reporting in another week or two but it is this week.
I have been talking about how the revenue numbers will have to improve and will be the key for the rally to continue. Pepsico is expected to report earnings of $1.02 but some of Wall Street thinks the company could come in at $1.05 per share. Revenue is the number we want to see them beat.
The other risk is the resistance at $61.75 which appears to be minor.
The other argument can be made that if the market does move lower, investors might flee to the “safer” names and Pepsico is just that. Heck, with football season upon us you don’t think dudes aren’t loading up on Lay’s, Dorito’s, Pepsi’s and Mountain Dew’s?
A run to $65 in the near-term should get these call options above $2.00 and we will initially target $2.25 as an exit. Stops should be entered at half your entry price.
CURRENT TRADES
Abercrombie & Fitch (ANF, $30.62, down $1.08)
November 30 puts (ANFWD, $2.25, up $0.45)
Entry Price: $1.50 (10/1/09)
Exit Target: $3.00
Return: 50%
Stop: $0.75, raise to $1.60
Action: Abercrombie broke down like a rented mule on Friday and a break below $30 could be in the cards this week. There were some interesting developments on Friday…there was HUGE put option buying in the November option chain.
The November 26 puts (ANFWA, $0.85, up $35) traded over 18,000 contracts and were up 70% while the November 21 puts (ZWRWF, $0.20, up $0.10) popped a double on over 14,000 contracts traded. These puts opened near their closing price so you couldn’t have gotten these returns unless you bought them on Thursday.
We, of course, were already in the trade on Thursday and the heavy put buying was a good indication of how much traders are expecting the stock to fall. There is short-term support at $30, then $27, which is where our initial targets are.
The stock could rebound off $30 which is why I RAISED the stop to $1.60. This will protect us from a loss and we will continue to raise it if ANF does indeed break below $30.
Citigroup (C, $4.52, down $0.01)
January 7.50 calls (CAQ, $0.11, flat)
Entry Price: $0.32 (8/28/09)
Exit Target: $0.64
Return: -66%
Stop: None
January (2011) 10 calls (VRNAB, $0.40, flat)
Entry Price: $0.60 (8/28/09)
Exit Target: $1.20
Return: -33%
Stop: None
Action: I told you the financials would be hit the hardest if the market fell on Friday and they were…for a minute. Citigroup opened at $4.40 and dropped to $4.31 before rebounding to a high of $4.59. That’s a ton of movement for a $4 stock. Continue to hold.
Imax (IMAX, $9.35, up $0.09)
March 2010 12.50 calls (IMQCV, $0.40, flat)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: -11%
Stop: None
Action: I had to do some digging but I wanted to explain the big move in shares of Imax on Tuesday. It turns out there was a fake press release that was posted by a website that said Walt Disney (DIS, $27.21, down $0.15) was buying Imax (Google it).
I’ve told you about the possibilities of a merger between Imax and somebody else but there is no way that something would happen this fast between the two companies. Disney just bought Marvel Entertainment (MVL, $49.37, down $0.22) and it doesn’t make sense for Disney to pay $1.5 billion for Imax.
This is what the fake release said the premium Disney was willing to pay which represents a stock price of $15/ $16. That meant our call options would have been worth $2.50 or $3.50.
As many of you know, I have covered this industry for years and we have done well on all three of the aforementioned entertainment/ movie stocks by buying call options. I could care less if there is a buyout, we just want the Imax to print $15 by March 2010.
Disney and IMAX are partners in a five-picture deal, including the upcoming “Disney’s A Christmas Carol”, so they already have a working relationship. Imax had one with Marvel. Yes, this deal makes all kinds of sense and maybe this rumor picks up steam again down the road. Imax did issue their own statement and said there was no deal but you have to bet they were excited. After all, the company has made it known in the past they are open for merger talks or a sale of the company. Continue to hold.]]>
