6:30pm (EST)
Pins and needles. Folks, I couldn’t wait to report the good news tonight concerning Intel (INTC, $20.49, up $0.09).
As you know, the company reported earnings after the bell and they easily beat Wall Street’s estimates. Although revenue slipped, earnings came in at $1.9 billion, or 33 cents a share. Analysts had expected 28 cents a share. Last year, Intel’s profit was $2 billion, or 35 cents a share, in the year-ago period. Sales were $9.4 billion, better than Wall Street’s forecast of $9 billion.
The thing that saved us was the company’s upbeat outlook and the fact that they crushed it on their gross margins. The company’s gross profit margin was 58% of revenue. Holy Moly! Its previous forecast was for 50%-55% of revenue, and in the last quarter, Intel was at 51% gross margins.
Intel had raised Wall Street’s expectations twice over the last two months which was one of the keys going into the trade last week. When a company keeps raising the bar in an economy like the one we have been going through then it was easy to be bullish. That is why I wanted to keep the trades open but I also wanted to protect your profits by taking a little off of the table.
In after-hours trading, Intel is up 92 cents, to $21.41. If these gains hold then we should be in pretty good shape on Wednesday. As far as the October call options, we will look to sell into strength because they expire on Friday.
The October 20 calls (NQJD, $0.83, up $0.09) will be worth $1.50 if the shares open at $21.50 and the November 20 calls (NQKD, $1.21, up $0.10) should open up around $2. I will be back in the morning with an update and to see how we look in early trading which starts at 8am (EST). Anything can happen between tonight and tomorrow’s opening bell but hopefully we hold above $21 when school lets in.
1:00pm (EST)
Update on Intel
Intel (INTC, $20.58, up $0.18)
October 20 calls (NQJD, $0.83, up $0.09)
Entry Price: $0.53 (10/7/09)
Exit Target: $1.00
Return: 57%
Stop: None
November 20 calls (NQKD, $1.20, up $0.08)
Entry Price: $0.90 (10/9/09)
Exit Target: $1.80
Return: 33%
Stop: None
Action: Intel has traded to a 52-week high of $20.69 today which was hit within the last hour. Clearly there is momentum heading into the earnings announcement. We still have the rest of the day to see how the stock trades but my job is to make you money so here is the game plan.
The October calls have traded to a high of 91 cents, a penny higher than yesterday, and slightly below our $1.00 exit target. If you own just the October calls, close half of the position or at least 75% of it. If you own just the November options, close half.
If you own both the October and November 20’s, close all of the October call options and let the November 20’s ride.
9:10am (EST)
Intel (INTC, $20.40, up $0.23)
October 20 calls (NQJD, $0.74, up $0.09)
Entry Price: $0.53 (10/7/09)
Exit Target: $1.00
Return: 40%
Stop: None
November 20 calls (NQKD, $1.12, up $0.14)
Entry Price: $0.90 (10/9/09)
Exit Target: $1.80
Return: 24%
Stop: None
Action: The October calls hit a high of 90 cents on Monday and our exit target is at $1.00. I was hoping we would have hit the exit on the October calls yesterday and we came within 10 cents. The plan is to lock in profits on the October calls and maybe a little in the November calls BEFORE Intel’s earnings announcement after the bell today.
I know it is going to be hard to close the October 20’s if Intel shows strength going into the closing bell but it’s best to close half. As a trader, it is up to you if you choose to lock in profits or “let it ride”. These options expire Friday AND they are in-the-money. If you own both the October and November call options, be smart and take some of the emotion out of the trade, especially if you are up, and lock in profits.
I think Intel is going to absolutely smash Wall Street’s estimates and would leave some open. However, if they miss on the revenue numbers the stock could fall back below $20 and the October 20’s will be worthless. Let’s see how we look at 1pm when I do the afternoon updates. In the meantime, if Intel slips, close the October calls for a profit.
Pepsico (PEP, $60.92, up $0.33)
November 62.50 calls (PEPKZ, $0.83, up $0.05)
Entry Price: $1.15 (10/5/09)
Exit Target: $2.30
Return: -28%
Stop: 45 cents
Action: We got a little pop in Pepsi yesterday and the call options traded to a high of 97 cents. The stock made a high of $61.36 and $60 is holding. Our breakeven point is $63.65 but these calls still have another 38 days before they expire. If we can get some momentum back in this stock then we could see a run to $65 if the market continues to rally.
Imax (IMAX, $10.05, up $0.20)
March 2010 12.50 calls (IMQCV, $0.45, up $0.05)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: 0%
Stop: None
Action: Welcome back to $10, Imax. This trade was profiled over 2 months ago and at the time I explained all we are hoping for is for the stock to add $1/ month. That is still the plan. Imax hit a high of $10.14 in September and built a nice base at $8-$9.
If it wasn’t for the “Barron’s bashing” and the downgrade last month, we would probably be looking at a different pictures. For those of you just joining us, Barron’s didn’t like the stock back in August and in September an analyst downgraded the stock from “Buy” to “Neutral”. Neither one know the story.
I have covered Imax a lot longer then these knuckleheads and I still like the story. The “Imax” name alone is worth $20 a share but all we are hoping for is a run to $15 March. If we can get that then these call options will be worth at least $2.50, or 450% higher, from current levels…]]>
