December 2009 | Members


1:10pm (EST)

A123 Systems (AONE, $18.04, up $0.28)

January 20 calls (ZKQAD, $1.00, up $0.05)

Entry Price:  $0.65 (12/02/09)
Exit Target: $1.30
Return: 54%
Stop Limit: None, place one at 75 cents

Action:  Please notice we have added a stop to this position for you to protect your profits for the rest of the day.  We are going to close the trade RIGHT NOW at current prices and take our gains for the portfolio before the weekend.

We have a TARGET of $1.30 and we could hit that today.  If not, then continue to watch into the close or shut the trade down now.  We have the unemployment report due out in the morning and we want to protect our profits.  

We could rollover some of the trade next week to reestablish positions but let’s take our profits.

Aeropostale (ARO, $28.97, down $3.75)

December 35 calls (AQOLG, $0.05, down $0.50)

Entry Price:  $0.65 (12/02/09)
Exit Target: $1.30
Return: -92%
Stop Limit: None

Action:  It’s all over but the crying…

There is no “bid” for these options so you will have a tough time getting a buffalo nickel for the contracts.  We will let these options expire worthless in our portfolio unless by a miracle the stock trades back over $35.  This would mean they are at the-money but the chances of this happening are slim and none.  Slim left at the opening bell…

For those of you who have just signed on today, here were our comments from this morning:

“This is an earnings trade so it wouldn’t make sense to list a stop.  We either hit the ball out of the park or we strike out.” 

“We aren’t a big fan of retail but some names in the sector are showing strength.”

“No matter how much “homework” you do, there is the element of surprise.” 

“We would also only do “half” positions which means if you normally do 10 contracts, do 5.”

Folks, as I was doing the trade, my gut was telling me to change the position to put options.  I could tell it in my writing now that I am reading yesterday’s comments but I went with my what my research was telling me. 

In any event, the “half” trade looks like it will get smashed at the open.

We figured the company might beat by a penny and they did as they reported earnings of 92 cents a share.  That was UP 47% from last year’s 3Q number of 63 cents a share.  The problem is that the company issued a disappointing 4Q update and the stock is tanking in pre-market trading.  Shares are down $2… to $30…

A “half” position would have been $325 if you had bought 5 contracts so we didn’t get hit too hard.  You also have to keep things in perspective when you have a trade like this and how it is “okay” to take chances on earnings trades.

Let’s say you bought 5 of the contracts because we said do “half” positions.  You also took a “full” position in A123 Systems trade as well.  That would mean 10 contracts and your cost would have been $650.  

This is $975 you are risking.  At one point yesterday, the A123 trade nearly doubled and let’s say you cashed out at $1.10.  That would put $1,100 back into your account.  Or, if A123 hits $1.30 today and you close then it would put $1,300 in your account.

Now, if the current Aeropostale trade expires worthless you will still show a 33% profit ($975 out / $1300 in).  On a track record these trades will show a 100% winner and a 100% loser.  Hmmm.  Looking at that, it looks like we broke even. 

The key, folks, is to really take a look at what YOUR goals are.  We had numerous subscribers who emailed us and said they closed A123 already for 75%+ profits. 

This is why EVERYONE will have different results and better results or worse results.

You have the choice of keeping the trade open because the options will probably have a “bid” of zero OR you can let it expire worthless and hope for a comeback which will probably not happen.  But at least now you see the method to our madness…and why we try our best to detail each trade as best we can.

TiVo (TIVO, $10.11, up $0.08)

February 12.50 calls (TUKBV, $0.75, down $0.10)

Entry Price:  $0.75 (11/30/09)
Exit Target: $1.50

Return: 0%
Stop Limit: None

Action:  Continue to hold.