2:05pm (EST)
Shares of Sonic (SONC, $23.21, up $2.29) are surging to fresh 52-week peaks following another decent earnings report. The company reported their numbers after Monday’s close and beat estimates by a penny, or, the 6 cents analysts had expected. However, Q2 revenues came in over $1 million light at $109.7 million versus expectations for $110.9 million.
Wall Street has been punishing stocks that miss on revenue but Sonic did guide future earnings higher and above current estimates.
Here were our thoughts in our Earnings section from Sunday’s Weekly Wrap (quotes are from previous Friday’s close):
“Sonic (SONC, $21.27, down $0.32)
April 22.50 calls (SONC140419C00022500, $0.45, down $0.05)
April 20 puts (SONC140419C00020000, $0.40, up $0.10)
Thoughts: We have been following the stock since it was in the single-digits and we should have added it to our Weekly Wrap as a covered call trade a few years ago. Shares have been pushing 52-week peaks as Sonic has become the alternative to other well-known burger joints and another good earnings report could get shares near $24. However, if they use the weather excuse or low guidance, shares could fall below $20.” (END)
The April 22.50 calls (SONC140419C00022500, $1.10, up $0.75) are up 214% and have traded to a high of $1.35 today.
The April 20 puts (SONC140419C00020000, $0.05, down $0.55) have folded like a cheap lawn chair as they are down over 90%.
The aforementioned call and put options would have made a great strangle option trade and are otherwise known as chicken trades due to an investor’s uncertainty on which way a stock might move.
Chicken or not, we should have pulled the trigger as shares have traded to a high of $23.51 and we had a good feeling a 10+% move was coming.
The cost of the trade would have been less than $1 on Monday’s open to do the strangle trade and there was a good chance to make 30%-40% on this morning’s open. Of course, going long just the call options would have made over 200%.
If you haven’t signed up for our Weekly Wrap, do so today if you are interested in these types of trades. There are a number of other earnings trades we have profiled for the week and while we do take them from time to time for our Daily, we don’t like overloading our portfolio with just earnings trades.
We have been mentioning the start of 1Q earnings are 2 weeks away and could help or hinder any rally or pullback. This could be another good reason why the market has settled in a trading range for much of March and for the year for the most part.
We have one current earnings trade that will be front-and-center on Friday and FDA news will be in play for another one of our trades on Thursday for our Daily. In other words, we have enough drama going on this week from our current trades to take additional action on others but there are still a lot of trades we like on our Watch List and from the Weekly Wrap. We just want to get through this week before possibly opening the playbook up even further.
As we make the turn, the bulls are showing some muscle as the Dow is higher by 118 points to 16,395 while the S&P 500 is gaining 9 points to 1,867. The Nasdaq is up 10 points to 4,236 and the Russell 2000 is advancing 2 points to 1,180. The S&P 500 Volatility Index ($VIX, 14.52, down 0.57).
We have a lot to cover inside our Members Area so let’s get on it. We could have additional updates into the close so stay close to your email inboxes.
