The LEAPS Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, January 19, 2007
Email – #355
** Earnings Bonanza
It’s been a busy earnings season so far. We have received great news from several positions over the last couple of weeks… and not-so-good news from one position.
Here is a brief rundown:
Microsoft (Nasdaq: MSFT) reported excellent earnings last week. Along with the Vista release this week, MSFT shares have been acting very well. Our options are up about 35% right now. My target for this position is 50% to 70% in the coming months. At that level, we may take profits or enter into a bull-spread and take our money off the table.
Shares of Teva Pharmaceutical (Nasdaq: TEVA) have begun to move higher – and are up 15% in the past few weeks. This bodes well for our TEVA spread. The upper end of our spread has lost most of its value while the lower end is picking up steam.
The new health-care proposals are good news for TEVA. As the largest generic-drugs company in the world, it benefits from any plans to increase participation in health-care plans.
Pep Boys (NYSE: PBY) is also moving in our direction. We are up close to 20% on this play in just a couple of weeks. I am looking for $16 plus on the shares as our exit point for the options.
Advanced Micro Devices (NYSE: AMD) reported lousy numbers. That has hurt our position. But we have two years left on this position, so time is on our side for a turnaround to take place.
Goldcorp (NYSE: GG) is doing quite well. Gold shares have rallied recently as the price of gold has moved higher. We have two years left on this play as well, and as volatile as gold is, we could see more ups and downs in this position before all is said and done. But any move in the next couple of years toward the recent highs in the mid-$700s per ounce will benefit our spread immensely.
Our most recent position in Schlumberger (NYSE: SLB) is performing very well. SLB shares are up nicely. Our low cost in the spread ensures that we will make a profit as long as the shares stay above $62.20 – $62.40, depending on your entry cost.
Up for expiration this month is our CBOE Volatility Index (WCB: ^VIX) spread. We have already made money on this position as a straight buy. And if you entered into the spread, the worst you can do is make a small profit, since we took in more than we paid when we entered the spread. You need to do nothing with this position as it will settle automatically at expiration.
Our Nasdaq 100 Index (Nasdaq: QQQQ) strangle is acting like a strangle should act. It is range-bound until we see a definitive correction or upsurge in the market. All we need is a 7% to 10% move in one direction to clean up on this play. And, the way the markets are acting now, it is probable that we will get a break in one direction before time runs out.
With natural gas beginning to show a basing pattern in the mid $6s, our natural gas play Chesapeake Energy (NYSE: CHK) is making money with its hedging program, having hedged much of its production at the $9 level. The recent cold snap in the United States has brought to light that inventories of gas, while high, can be depleted in a heartbeat. What we are really looking for here is a rough hurricane season to send the price of natural gas rocketing higher. That will represent our exit point this year.
Finally, we are up over 30% on our Allstate (NYSE: ALL) put spread. Today, Allstate shares are down sharply after the company reported lackluster results – amazing considering the lack of natural disasters in the U.S. last year. We will look to exit this position later this year as we enter into the summer hurricane season – sooner if the shares continue their weakness.
Karim
Current Portfolio
Company / Symbol: Pep Boys (NYSE: PBY)
Option / Symbol: Jan. 08 $10 call (KSY AB)
Date Purchased: 1/9/07
Current Price: $6.00
Comment: Hold.
Company / Symbol: Nasdaq 100 Index (Nasdaq: QQQQ)
Option / Symbol: Jan. 08 $40 put (WD MN)
Date Purchased: 11/27/06
Current Price: $1.40
Comment: Hold.
Company / Symbol: Nasdaq 100 Index (Nasdaq: QQQQ)
Option / Symbol: Jan. 08 $48 call (YWZ AV)
Date Purchased: 11/27/06
Current Price: $2.00
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (WMF AF)
Date Purchased: 8/8/05
Current Price: $3.20
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $12.63
Comment: Hold.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 08 $35 call (WZY AG)
Date Purchased: 4/25/06
Current Price: $1.65
Comment: Hold.
Company / Symbol: Advance Micro Devices (NYSE: AMD)
Option / Symbol: January 2009 $35 call (VVV AG)
Date Purchased: 6/21/06
Current Price: $0.85
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: Schlumberger (NYSE: ALL)
Option / Symbol: Jan. 08 $60 call (WUB AL)
Date Purchased: 1/19/07
Current Price: $10.60
Comment: Hold
Company / Symbol: Schlumberger (NYSE: ALL)
Option / Symbol: Jan. 08 $65 call (WUB AM)
Date Purchased: 1/19/07
Current Price: $7.80
Comment: Hold. Sold call against Jan. 08 $60 position.
Company / Symbol: Allstate (NYSE: ALL)
Option / Symbol: Jan. 08 $60 put (WLZ ML)
Date Purchased: 12/8/06
Current Price: $3.30
Comment: Hold
Company / Symbol: Allstate (NYSE: ALL)
Option / Symbol: Jan. 08 $55 put (WLZ MK)
Date Purchased: 12/8/06
Current Price: $1.55
Comment: Hold. Sold put against Jan. 08 $60 position.
Company / Symbol: CBOE Volatility Index (WCB: ^VIX)
Option / Symbol: Feb. 07 $15.00 call (VIX BC)
Date Purchased: 5/3/06
Current Price: $0.25
Comment: Hold
Company / Symbol: CBOE Volatility Index (WCB: ^VIX)
Option / Symbol: Feb. 07 $17.50 call (VIX BW)
Date Purchased: 6/14/06
Current Price: $0.15
Comment: Hold. Sold call against Feb. 07 $15 position.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $30 call (OPJ AF)
Date Purchased: 6/9/06
Current Price: $6.40
Comment: Hold.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $40 call (OPJ AH)
Date Purchased: 6/9/06
Current Price: $3.40
Comment: Hold. Sold call against January 09 $30 position.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $40 call (WTX AH)
Date Purchased: 5/23/06
Current Price: $1.65
Comment: Hold.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $45 call (WTX AI)
Date Purchased: 5/23/06
Current Price: $0.55
Comment: Hold. Sold call against January 08 $40 position.
