Sina (SINA, $45.50, down $7.60) finally reported earnings last night and now we can see why they waited. The company reported a good quarter after beating estimates by 6 cents a share. Profits came in at 17 cents a share on revenue of $148 million versus expectations for 11 cents a share on $146 million. That was the good news.
The bad news is Sina lowered it current quarter guidance on revenue to $132-$136 million while the suit-and-ties had penciled-in sales of $152 million, on average. Shares are down 14% on the break below $50.
While we knew Sina might have a decent quarter, our research was showing a lower stock price after the earnings announcement. The problem was figuring out when they would report. There were several different earnings calendars that had the company reporting in late October, then early November and we thought for sure it would be last week.
We were playing some November put options on hopes of a 10% correction in the stock that would have meant an easy triple-digit profit for our puts. However, because they were November options that expire today, we felt the prudent move was to take our double-digit profits off the table because of the uncertainty of when Sina would report. However, the one mistake we made was not keeping the stock on our Watch List and the December put options.
We recently closed our Sina November 50 puts (SINA121117P00050000, $4.45, up $3.65) at $1.25 for a 25% profit and they closed yesterday at 78 cents. Of course, it would be easy to get upset because we missed an incredible opportunity as these puts are up a whopping 470% today but we would have been down 25% with one day left on a lottery ticket had we left the trade open.
These types of things happen but if Sina would have raised guidance shares could have surged $7 the other way and could be pushing $60.
The Sina December 50 puts (SINA121222P00050000, $5.30, up $3.25) are up a sweet 150% but the premium would have been a little pricey for us as they closed yesterday around $2. In any event, although our homework correctly called the drop below $50 we wouldn’t have felt comfortable with the risk/ reward based on the premium in the options to play earnings.
We are going to sit back and watch the rest of the fireworks and we have updated our current trades as we head into the second half of trading. We are going to lock-in half profits on a few more trades that are showing nice double-digit returns and we may release an earnings trade for next week late in the day. The stock is on our Watch List and we may use the LEAPs to offset some of the risk although we think the company’s numbers could beat the Street.
The November option chains are expiring today after the close and we have mentioned our portfolio would be very light going into the back half of the month and yearend. We will have a ton of room to play a further downside move or a rebound as we look to put the cherry on top on what has been a super year.
It’s not often the market gives this many clues and for the past few months, we have nailed the action on where the market would be headed in the weeks and months ahead. Following a 5-week range to end the summer, we said the market would rally in mid-August to test resistance and it did. Then in mid-October, we warned of Dow 12,600; S&P 1,350; Nasdaq 2,900; Russell (2000) 780. Here we are.
We will be deep in chart work over the weekend and with the market testing its July lows, it remains to be seen if we test the June lows or if the market bounces on positive news the zombies are coming closer to an agreement to avoid the Fiscal Cliff.
Volatility has picked up following some on the comments now hitting the market. The major indexes were down about a half-percent but have turned positive.
The Dow is up 47 points to 12,590 while the S&P 500 is higher by 5 points to 1,358. The Nasdaq is advancing 7 points to 2,843.
We will be back Sunday night with the Weekly Wrap and Monday morning with the Daily. Until then, have a great weekend everyone!