1:35pm (EST)
No matter how much you hate a stock or feel it is overvalued, overhyped, or that analysts just don’t get it – it is often best to sit on the sidelines as emotions can play a major role in the difference on a good trade or bad trade.
With the student loan debt surpassing $1 trillion, there will come a judgement day when company books will have to reset as more and more loans default. Blame the zombies for the majority of these problems as they pay out unemployment benefits and encourage everyone to go to school. Especially, online colleges that they help fund with taxpayers money.
Back to the main point.
Apollo Education Group (APOL, $30.52, up $3.59) is a stock we have hated for years but have respected because it is made of teflon. We talked about the company’s story in our Weekly Wrap and here were our thoughts ahead of earnings (quotes from 1/3/2014):
Apollo Education Group (APOL, $27.03, up $0.14) is
January 25 puts (APOL140118P00025000, $0.70, down $0.05)
January 30 calls (APOL140118C00030000, $0.55, up $0.05)
Thoughts: For those of you that have followed us over the years, you know we have always been bearish on Apollo Group as it is one of our favorite ways to play the $1 trillion in student debt loans. We have covered the company’s “shady” history and we believe this is a low-teens to single-digit stock. However, shares have been in a strong uptrend of late and that could continue depending on how the company spins its earnings report. If we do take action, it will likely be a strangle option trade and where we would use both options to play a possible 10%-15% move on the news. (END)
Shares pushed $30 in after-hours trading last night and closed at $29.55. They opened at $x this morning and have traded up to $29.93 and have trade to a high of $31.94.
The January 30 calls (APOL140118C00030000, $1.05, up $0.05) were at double-nickels (55 cents) and went out on Tuesday’s session at 57 cents. They have trade to a high of $2 after opening at 86 cents.
The January 25 puts (APOL140118P00025000, $0.05, down $0.77) were at 70 cents Sunday night and went into yesterday’s close at 82 cents. They opened at 10 cents this morning and traded to 40 cents before falling to a nickel.
A 10-contract trade for each call and put option is known as a strangle option trade.
Our gut instinct was right and going long the calls against our emotions would have paid off nicely. The strangle trade would have made nearly 100% had the options been closed at the open and that is a sweet profit on less than 24 hours of work.
Still, to manage this trade would have been tricky but we liked the risk/ reward the options offered even though we hate the stock.
There will be a day we come back to Apollo Group as resistance is at $32 and in the past has been a brick wall.
As we head into the second half of trading, the market is mixed and the fireworks begin at 2pm as the Fed minutes will be released.
The Dow is down 63 points to 16,467 while the S&P 500 is higher by a fraction and is holding 1,838. The Nasdaq is advancing 15 points to 4,168 while the Russell 2000 is lower by 2 points to 1,155. The S&P 500 Volatility Index ($VIX, 13.09, up 0.17) is basically flat but could spike 5%-10% into the close.
Subscribers, check the Members Area for the updates. We could have additional Profit Alerts and perhaps New Trades shortly after the Fed minutes are released so stay locked and loaded into the close.
