12:40pm (EST)
Shares of Priceline.com (PCLN, $635.50, up $42.96) are surging 7% today after announcing better-than-expected results last night. The company reported a profit of $226 million, or $4.41 a share versus $136 million, or $2.66 a share in the year ago period.
Priceline.com actually earned $5.37 a share but backed-out some one-time charges on revenues of $991 million. The suit-and-ties were expecting earnings of $5.06 a share on $969 million in revenue.
Here’s the funny thing about stock-splits. The Wall Street pros will tell you they don’t mean much value wise because you still have the same dollar amount, however, stock-splits are bullish and allows higher priced stocks to become cheaper. Again, no big deal the suit-and-ties will say but it is a big deal to us because the options become cheaper.
For example, the Priceline.com March 600 calls (PCLN120317C00600000, $38.00, up $0.16) were going for $22 by yesterday’s close and would have cost $2,200 just to buy one contract. A 10 contract trade would have cost $22,000. Of course, the $2,200 is now worth $3,800 and the 22k is now at 38k.
The WEEKLY March 600 calls (PCLN120302C00600000, $35.00, up $17.00) closed at $18 and would have cost $1,800 for 1 contract. While these options had some stellar gains, we would rather buy 10 contracts on the near-term slightly out-of-the-money call or put options under $2 which gets harder to do when stocks get over $100. This is because the premiums become more expensive. You also can’t close a “half” position on 1 contract.
Something that puzzles us though is this.
Priceline.com actually did a reverse stock-split back in June 2003 when its shares were trading at $4.24. The 1-for-6 reverse took shares to $25 on the next trading session and they have never looked back. If they did a split 6-to-1 the other way at current levels, shares would be at $100 which is still an expensive stock to play options on but something we would look at.
Of course, if you had invested $10,000 in the stock 10 years ago, you probably don’t care about this conversation right now.
We aren’t sure if and when we will ever get the chance to play Priceline.com – we just wish they would do a stock split.
As far as the market, the bulls are running and Tech is pushing 3,000.
The Dow is up 25 points to 13,005 while the S&P 500 is up 4 points to 1,371. The Nasdaq is higher by 19 points to 2,985.
We have more good news on this two-for-Tuesday. We are closing out another call option trade for 40% gains while we let our longer-term options run on the same name. Subscribers, check the Members Area for the updates and we will be back in the morning with our next market commentary.