12:25pm (EST)
My Track Record shows I have been bearish on Kirkland’s in the past and with earnings on Thursday, I am looking at an option trade to play a possible 10% move in the stock.
Naturally, my bearish feelings are strong despite the company beating Wall Street’s estimates over the past 4 quarters. Kirkland’s has been profitable the past 3 quarters but posted a loss in the year-ago period. The suit-and-ties have penciled-in a loss of 3 cents a share for the recently ended quarter.
The half-dozen analysts that cover the company have a tight loss range of 2-4 cents. A year ago, estimates were for a loss of 10 cents a share and they reported numbers that were 3 cents in the red.
Hmmm. Either analysts have done the homework (doubtful) or they have been lazy and magically projected another loss for 3 cents a share (probable).
While there is the chance for an upside surprise again, losses could be much wider if revenues come in south of $105 million for the quarter.
I have looked at the near-term option chains and the September 20 calls (KIRK140920C00020000, $0.75, up $0.20) are seeing a little action but these options are thinly traded. The bid/ ask is also wide at 55/ 75 cents.
The September 17.50 puts (KIRK140920P00017500, $0.60, flat) would be my flavor of choice but there has been no volume in these options today. Even worse, the bid/ ask is a staggering 30 cents/ $2.75 according to my brokerage account quotes.
The open interest is also low in the September option chains.
Here is what’s interesting.
The October 17.50 puts (KIRK141018P00017500, $0.60, flat) have a bid/ ask of 45/ 80 cents. This option would give a bearish trade in Kirkland’s a longer-time to play out and at a cheaper price but there has been no trades today in these puts as well.
When buying and selling options, it is best to use limit orders instead of market orders. If not, you could bet scalped by entering market orders and overpaying for an option. I like to trade options with lots of volume and open interest with bid/ ask prices of 5 cents or less.
I might try to work the bid/ask to see if I can get the October 17.50 put options for 60 cents because at that price, or lower, I would take the trade.
I like the prospects of Kirkland’s stock tanking on earnings but it doesn’t meet all of my standards to make this an official option trade for the portfolio.
Although I will be sitting on the sidelines watching the parade, it will be interesting to see how this trade plays out.
In the meantime, I have a juicy Profit Alert on a current trades that has hit a triple-digit return (100%) so let’s go ring the register!
Heading into the second half of trading, the Dow is up 70 points to 16,909 while the S&P 500 is gaining 7 points to 1,979. The Nasdaq is advancing 10 points to 4,518 and the Russell 20000 is higher by 4 points to 1,163.
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Closed Trades for 2014: 81-39 – the Weekly Wrap is 22-4 (85%) for 2014 (107-11, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk. All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 12pm-1pm updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
GT Advanced Technologies (GTAT, $18.32, up $0.09)
September 20 calls (GTAT140920C00020000, $0.95, up $0.10)
Entry Price: $0.70 (8/18/2014)
Exit Target: $1.40 (Limit Order to close half)
Return: 36%
Stop Target: 70 cents, raise to 80 cents (Stop Limit)
Action: The Limit Order of $1.40 hasn’t triggered but the calls have reached $1.02. Shares have trade to a high of $18.57 and I would like to see $18.50 hold into the close. I have raised the Stop Limit to 80 cents to ensure a profit.
Sony (SNE, $18.84, up $0.32)
October 19 calls (SNE141018C00019000, $0.55, up $0.10)
Entry Price: $0.45 (8/18/2014)
Exit Target: $0.90
Return: 22%
Stop Target: None
September 18 calls (SNE140920C00018000, $1.00, up $0.20)
Entry Price: $0.50 (8/14/2014)
Exit Target: $1.00 (Limit Order to close third)
Return: 100%
Stop Target: 60 cents (Stop Limit)
Action: The Limit Order to close a third of the September 18 calls has triggered. I would love to see shares clear $19 today. Near-term support is at $18.
Yahoo (YHOO, $37.72, up $0.34)
September 38 calls (YHOO140920C00038000, $1.65, up $0.10)
Entry Price: $1.25 (8/11/2014)
Exit Target: $1.90-$2.50
Return: 32%
Stop Target: $1.25 (Stop Limit)
October 43 calls (YHOO1018C00043000, $0.95, up $0.05)
Entry Price: $0.80 (8/11/2014)
Exit Target: $1.20-$1.60
Return: 19%
Stop Target: None
Action: Shares have been hovering in a tight range for 3 weeks between $35.50-$36.50. I’m have been expecting a breakout to $40 once $37 cleared and I would like to see $37-$36.75 hold on any pullback.
World Wrestling Federation (WWE, $14.38, up $0.32)
September 15 calls (WWE140920C00015000, $0.40, up $0.05)
Entry Price: $0.50 (8/6/2014)
Exit Target: $1.00+
Return: -20%
Stop Target: None
Action: The close above $14 was bullish. If shares can clear $14.25, another round of short covering could follow. Support is at $13.50 and a drop below this level will likely push me out of the trade.
The 2 prior WWE trades made 203% (in early March) and 133% (in early August). This is a piggy-back trade that I’d like to see perform just as well.
Pool (POOL, $56.67, up $0.24)
October 50 puts (POOL141018P00050000, $0.55, flat)
Entry Price: $1.10 (7/16/2014)
Exit Target: $2.20-$3.30
Return: -50%
Stop Target: None
Action: A break below the July low of $54.16 would be bearish and could lead to $50 and fresh 52-week lows. Longer-term resistance is at $57 along with the 200-day MA.
The break-even point for the trade is at $48.90, technically, by mid-October. These options have over 2 months before they expire.
Other 2014 Portfolio OPEN positions (4): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire. Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.
Fortinet September 28 calls (from June 2013) – continue to hold
CVS Caremark September 82.50 calls (from July 2014) – continue to hold
S&P 500 Spiders September 180 puts (from August 2014) – continue to hold
Fossil September 90 puts (from August 2014) – continue to hold
