12:10pm (EST)
There were a few earnings trades we were targeting coming into the week with 2 of them occurring today. Our weekend research showed one company disappointing Wall Street with their numbers while the other company would impress the suit-and-ties.
We listed possible put options as a way to play Carnival’s (CCL, $34.94, down $2.46) possible drop to $35 but we needed to be in the trade before Monday’s close as the company reported earnings before the open.
Here were our thoughts on Monday morning ahead of the open (quotes from the prior Friday’ close):
Carnival (CCL, $37.40, up $0.32) Earnings on Tuesday
October 36 puts (CCL131019P00036000, $0.50, down $0.05)
Thoughts: There were numerous negative headlines in the cruise industry over the summer and we like these put options to play a possible drop to under $35. Over 4,000 contracts traded last Friday and these put options will double if shares fall below $35. (END)
Shares of Carnival are lower by 6% but the October 36 puts (CCL131019P00036000, $1.50, up $1.02) are zooming 200% and have traded up to $1.75 today. There could be further weakness down to $30 but if you are in this trade, close half to protect profits and make it a risk-free trade with a tight stop.
The other option trade we were considering was a bullish play on CarMax ($51.72, up $1.71) but we were under the assumption the company would report earnings after the close.
Our plan was to get into some call options this afternoon to play a possible breakout to new highs but CarMax also reported numbers before the opening bell.
We were targeting longer-term options to give the trade move time to play out.
The January 55 calls (KMX140118C00055000, $1.50, up $0.15) closed at $1.35 yesterday after falling 40 cents and offered a good entry point ahead of the closing bell. They have traded to a peak of $1.85.
Although these options weren’t as explosive as Carnival’s, they could be if CarMax continues to set all-time highs. We said the stock was a strong buy in the $20’s over a year ago and we should have made it an official recommendation for our Weekly Wrap back then.
CarMax is still in the early stages of its growth so we could see shares double again over the next year or 2 on their way to $100.
As a way to play the move, the 2016 January 65 calls (KMX160115C00065000, $5.00, up $0.40) could be used as they have over 2 years before they expire.
At current prices, 1 option contract would cost $500. If shares are at $100 in 2 years, these options would be worth $35, and your $500 investment would be worth $3,500.
This is not an official recommendation but it is a freebie for those of you that trade LEAP options.
As we head into the second half of trading, the Dow is up 12 points to 15,413 while the S&P 500 is higher by 2 points to 1,703. The Nasdaq is advancing a 12-pack to 3,777.
We do have one New Trade today on a stock that is on fire and one we have been following in our Weekly Wrap. We used longer-term options to play the move past $30 and now we want to use call options on a possible surge past $35.
Subscribers, check the Members Area for our latest recommendation and use limit orders to get the best fills. We could also have additional new trades and/or a Profit Alert later today so stay locked-and-loaded.
