9:10am (EST)
Berkshire Hathaway Class B (BRK/B, $76.69, up $2.27)
June 100 calls (BPY100619C00100000, $0.30, down $0.10)
Entry Price: $0.50 (2/1/10)
Exit Target: $1.00+
Return: -40%
Stop Target: None
September 100 calls (BPYIT, $0.55, down $0.05) (BPY100918C00100000)
Entry Price: $0.95 (2/1/10)
Exit Target: $2.00
Return: -37%
Stop Target: None
Action: The June calls have a bid of 30 cents and yesterday they were at 40 cents. We mentioned we might not see any returns on the June calls until share crack $78-$80. Same with the September calls.
Some of you are new to option trading and have asked why we didn’t get more of a pop. The reason these options didn’t budge is due to how far out-of-the-money these options are. Remember, these are cheap options that we are looking to hit a homerun trade with.
Yes, the stock could stall OR shares continue higher but we won’t see significant returns until we get closer to par (100). If shares are $101 by June we have a double. If they are $101 by September we have a double. And these are from the original entry prices. The return is higher if you got in at lower prices. However, we are looking for much bigger gains than that.
If BRK/B can get to $100 then these calls will move nearly $1-for$1 with the stock because they will be in-the-money…and so will we.
If shares do not hit $100 by either date then the call options will expire worthless so please keep that in mind as well. If this current “rally” has any legs then this stock should explode with it now being in the S&P 500 and the mutual fund managers having to buy shares to show first-quarter results to their investors.
EMC (EMC, $17.13, up $0.37)
April 19 calls (EMC100417C00019000, $0.17, up $0.03)
Entry Price: $0.55 (1/19/10)
Exit Target: $1.00+
Return: -69%
Stop Target: None
Action: We got a nice rally in EMC yesterday. Continue to hold.
Shuffle Master (SHFL, $9.10, up $0.17)
May 10 calls (SFQ100522C00010000, $0.70up $0.10)
Entry Price: $0.85 (1/19/10)
Exit Target: $1.70+
Return: -18
top Target: 40 cents
Action: For those of you who have been with us awhile you know that options can go through some wild price swings during the course of a trade. It is possible to be down 75% on cheap “out-of-the-money” options and we normally don’t carry stops for trades under $1.00. We did for this one because the support has been so strong.
We aren’t out of the woods, yet, but we are in some solid long-term trades that just take time to develop. We also profiled this trade at the market highs nearly a month ago and it has weathered the downtrend pretty well.
If the Casino stocks continue to move (they have been on fire this week) then Shuffle should continue to move with the trend
Continue to hold.
WATCH LIST SECTION
These trades are NOT recommendations until we send out an alert. These are trades that we like but have not added to the portfolio as an official recommendation because of market conditions. We will not list entry prices because these stocks are on the verge of breaking out or they could sell-off.
Special Note: We have fielded some emails and phone calls on Imax (IMAX, $12.78, up $0.76) and we wanted to do an update. As you know we just started this section and our purpose is to show you trades that we are watching. This will help you become a better trader and Imax was a trade that was listed here at first when we listed limit prices.
The original trade was profiled last Friday and our entry price was triggered when the March 12.50 calls (IMQCV, $1.15, up $0.40) traded down to $1.25. We had a stop of 60 cents because these options we in-the-money but that was triggered on Monday when shares fell to $11.50.
We mentioned this exact price point in our update and as fate would have it, we got stopped out. Imax has made a huge turnaround over the past couple of days and earnings are due out soon. It is still a high risk/ high reward trade but we are already out. We would keep the same 60 cent stop target on the position and an exit target of $2+.
Another stock that we had on our radar was Apollo Group (APOL, $58.30, down $0.16) and the March 55 puts (OAQ100320P00055000, $1.75, up $0.20). We were hoping shares would trade back up to $64 before falling below $60 but we never got that setup. The puts were trading at $1.60 and we mentioned shares could test $57-$58.
The stock hit a low of $57.32 and the puts trade as high as $2.05. We will have to wait and see if shares fall to $55 which was our next target as the $60 level should now become resistance.
Nasdaq PowerShares ETF (QQQQ, $43.67, up $0.65)
March 42 puts (QQQ100320P00042000, $0.66, down $0.28)
Action: Continue to watch.
Chipotle Mexican Grill (CMG, $101.12, up $1.61), Panera Bread (PNRA, $72.91, up $0.54)
We told you there was a chance Panera would be a “buy the rumor, sell the news” trade and the action in the option pits was a good clue for us to stay put. The Chipotle options were fluffed and we had a feeling these trades had run their course. In after-hours last night, Chipotle was down $4 while Panera was down $2.
Freeport McMoRan (FCX, $74.17, up $3.14)
March 65 puts (FCX100320P00065000, $1.45,down $0.74)
March 85 calls (FCX100320C00085000, $0.87, up $0.38)
Action: We certainly didn’t get the break below $70 yesterday and this stock is starting to look like a great strangle trade. If shares trade $75 then these two options should be about equal in price. However, with the 3-day weekend coming up we will wait and see what the premiums are next week.
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