Reflections on an earnings prediction
Well my friends, I was wrong.
While GE did beat EPS estimates, they missed on revenue. This caused a huge sell off in the pre-market, pushing the stock down about 4% off the previous close. I missed the conference call but haven't seen any news about a dividend increase. I'm holding out until next quarter for that. In the meantime, there was some caution from the Seeking Alpha community in an interesting article here:
Traders Should Lean Short On GE After Friday's Pre-Market Earnings Report
The author is pointing out that even when GE beats estimates, it usually results in a sell-off.
This article didn't really come out in time for me to exit my February $20 calls for a measly profit, instead I'm stuck hoping for a recovery. The premiums on the $20's aren't too bad right now, as the stock is slowly recovering back above $19.
Looking to see this close back above $19, with significant fluctuation around the that mark. I think there is huge growth opportunity for GE in 2012, and while Europe remains questionable I think their position in the US is solid. By the end of today I think GE will recover back to to yesterday's close of $19.15.
I'm not abandoning my $20 calls, as I still have a few weeks of time value remaining, I think this is just a brief earnings shock. If earnings were really bad, we'd be below $18 at this point, but the market activity is proving positive. With a few more weeks, this low volatility stock will be above $20 and I'll take my profits on the calls.
Good luck to all
Setting Your Limits Too Low!
Don't underprice yourself out of a trade!!
This morning I watched MCD hit a 52-week high and start pulling back little by little, with small bumps along the way. While trying to get into the Feb 100 puts I revised my price three times before bottoming out, matching the common bid of 1.22, with an ask of 1.24. Hoping for another jump in price I left my order to stand, only to watch the stock price slowly erode away from me.
What did I miss out on? If I had raised my limit to the ask of 1.24 my trade would have been executed, and the price erosion would have gone in my favour. I successfully called the direction! Now what? As I write this the put premium is bid of 1.37 - a 10.4% gain. I would have quickly pulled out of this trade at that level to take my gains. But the way it stands, I never even got into the trade.
Furthermore, I was buying into an option with good time value on a stock that has pretty decent volatility lately. It keeps setting new 52 week highs, and then slowly pulling away from them. There's a lot of debate about "calling the top" or "calling the bottom," but in the case of this stock it's almost a sure bet for a quick selloff after setting new 52 week highs, it happens every time.
Even though I remain bullish on MCD, I will still continue to look for put opportunities. It has had a momentous rise, but it keeps dropping back every time it charts upward. You can pull quick 8-12% gains buying put positions at those levels.
As I finish this post we're working our way into the lunch hour, and it's trading steady around 101.50, and my put bid/ask are 1.29/1.32. I'll wait for another quick pop to drop the ask down to about 1.26 +/- 0.01 and get on board. With 30 days to expiration there's bound to be a down day.
For reference, Delta is -0.38 and theta is -0.03, so we're not talking about significant time decay if the stock price stays steady.
Hold in there friends, Mr. Market's wild ride will continue through the next few weeks of earnings and news out of Europe. Take advantage of any swing you can find, and don't forget: volatility is your friend right now (if you're an options trader).
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