12:15pm (EST)
It has been a tale of two different tapes today for a couple of companies which reported earnings after the bell last night.
One of our all-time favorite stocks and some of our biggest option trades, ever, over the years have come from Dendreon (DNDN, $11.54, down $24.30) but we missed the boat on this one. It has been a stock we have followed for years as we watched it grow from Small Town Billy to Big Town Bobby but today Wall Street is kicking the stock to the curb.
Shares are down a whopping 67% after the company reported sales well below analysts’ estimates. The company’s flagship drug, Provenge, did nearly $50 million in sales for the quarter but the Street was looking for $58 million. However, Dendreon also lost $115 million, or 79 cents a share, when estimates were for a loss of 70 cents.
To make matter worse, Dendreon lowered its sales forecast and blamed possible reimbursement issues due to the recent Medicaid uncertainty. The stock has been an easy read technically and we knew once shares fell below $38 in late-July there would be further selling pressure. But not in our wildest dreams did we think shares would be looking at possible single-digits when the market opened this morning.
The stock opened at $12.71 and is at its lows for the day. Those who shorted Dendreon ahead of earnings, or bought put options, are making a mint today. The August 35 puts (DNDN110820P00035000, $22.40, up $20.90) were at $1.50 going into yesterday’s close and there was unusual volume of over 1,000 contracts on these options. Those who took a flyer are up nearly 1,400%!
In other words, a $1,500 investment on 10 contracts yesterday would have been worth a cool $22,400 today. Now you know why options are the most powerful investments on the planet and what makes them so lucrative.
In April, we took a flyer on a Dendreon August call option but we can lay that one to rest.
Elsewhere, we did a featured article on Zipcar (ZIP, $22.90, down $0.19) in our Weekly Wrap this past Sunday and here is a sneak peak, with a chart and our thoughts:
“For the quarter that just ended, Zipcar is expected to post a loss of 23 cents a share on revenue of nearly $60 million when it reports its numbers this Wednesday. For the current quarter, analysts expect the company to improve their loss to just 2 cents a share on revenue of $66 million.
For the current year, losses should come in at 45 cents on revenue of nearly $240 million. However, for 2012, Zipcar is expected to turn a profit of 5 cents a share on revenue of nearly $300 million.
The initial costs of expansion and buying new cars as they grow will need to be monitored by Zipcar but so far it looks as though they are on top of it.
As far as the chart, we would like to see shares come down to $20 which is where strong support lies (black line, orange circles) and where we would look to establish positions. A breakout could occur on better-than-expected numbers above $24 which is current short-term resistance (red line, green circles) after serving as prior support.
Zipcar is a growth story and we will be listening to their conference call after they announce earnings this week to get a better feel for management and their growth plans.” (END)
We liked what we heard last night as Zipcar reported a loss of 17 cents, which was 6 cents better than expectations, had higher revenues than expected, and raised their outlook. However, they need to tighten ship on the expenses.
Shares did not fall to $20, or the “triple-bottom” (orange circles) like we were hoping. Instead, the “double bottom” at $22 held all week. Shares surged to a high of $25.88 at the open but there could be a pullback to $20, especially if $24 continues to act like resistance.
Put Zipcar on your Watch List going forward and we may look at LEAP options down the road if the company continues to improve its losses.
We added a new recommendation today, a put option, in case our downside targets from Wednesday morning are taken out. We could throw some technical jargon at you today – “double bottoms”, “Fibonacci Retracements levels” – but the bottom line is this, anything can happen from here.
Oil is under $90 and is down $3 to $89 today and there is renewed talk of QE3 which helps the bullish case for a bounce. However, the technical and emotional pictures are favoring the bears. Does the market fade or break down like a rented mule? We should find out tomorrow once the all-important jobs numbers are released.
And one more story before we go…
LinkedIn (LNKD, $103.50, down $2.15) reports earnings after the closing bell. Of the five analysts that cover the stock, estimates call for a loss of 3 cents a share, on average. The high estimate has the company earning a profit of 3 cents a share while the loss estimate is as high as 8 cents a share.
We think LinkedIn could move 15%-20% in after-hours tonight and when trading opens on Friday. For the high-rollers out there, we have a strangle option trade we are profiling but the premiums for the options are expensive. We don’t need to make big bets or spit in the wind given the whipsaw action we are seeing but we do think the trade could do really well.
We think shares will move up or down at least $20, maybe $30, and we like this trade a lot but we will probably sit on the sidelines. LinkedIn will explode higher if they report a profit, much the same way Google did when they announced their earnings for the first time after going public. If losses are larger-than-expected then shares could tank to $75 or below.
As we head to press, the Dow is down 303 points to 11,592 while the S&P is getting punished for 36 points and is at 1,223. The Nasdaq is lower by 80 points to 2,613. We have been mentioning these levels over-and-over for the past few weeks so let’s see if they hold. One thing is for certain, as an option trader, you have to love the volatility!
Subscribers – check the Members Area for the updates and we will see the rest of ‘yawl in the morning. One of our current put trades is up 233%…
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