EOT Position Update – October 7, 2009

| October 7, 2009

October 7, 2009

Market Snapshot

Get ready… Earnings season is here.

Right now we’re in the calm before the storm.  This week we saw the major indices retreat to the support of their 50-day moving average.  Now we’re moving back to the same levels we were at a week ago.

The indecisive and directionless trading isn’t moving our options.  It’s made for an uneventful week for our open positions.

All that should change with the start of earnings season when Alcoa (AA) reports after the closing bell today.  However, most of our positions don’t report for a few weeks.

One thing to keep in mind…

Some companies’ stock price will move on earnings whispers before they report. Conservative traders may want to ‘sell the rumor’ ahead of the earnings report.  By locking in gains prior to the report, you’ll avoid losses but will also miss out on the upside.

Obviously we’re expecting our open call option positions to at least meet analysts’ expectations, if not deliver an upside surprise.  (Otherwise we wouldn’t have recommended them.)

The wild card is management’s forecast for future quarters.  It’s tough to predict what they’ll say.  It’s especially difficult when some companies intentionally ‘sandbag’ their forecasts.  They’ll give a low estimate now so they have a good chance to beat it later.  (I know it’s amazing to think a company would try to manipulate their own stock price.)

They’ll ‘sandbag’ for a variety of reasons, but mainly because they’re trying to manage investors’ expectations.  It’s always better to revise estimates higher than lower.  And a positive surprise is better than a negative one…

In the long run, this can work to the company’s advantage but it can play havoc with our short term options.

However you decide to play it, we’re sure to get some fireworks.

Now for the updates…

Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  I try to focus on the positions that have some significant news or price movement.

  TMO Dec 2009 $45 CALLS (TMOLI)
TMO is our latest trade we sent out on Monday.  It’s bounced off support of its uptrend and it’s showing a nice gain already.  Hold tight for the earnings announce-ment in a few weeks.  Resistance is at $47.50 and $50.  Support is at $41.50 and $38.50.

  ININ Dec 2009 $20 CALLS (NQXLD)
ININ is holding up well.  It’s sitting at support of the 20-day moving average.  Hold tight for the earnings announcement in a few weeks.  Resistance is at $22.25 and $25. Support is at $16.50 and $14.

  MMM Jan 2010 $75 CALLS (MMMAO)
3M announced plans to spend $1 billion on acquisitions over the next year.  They’re looking to add new blood to their stable of existing products.  Especially in the fast growing Asian markets.  Announcements of these acquisitions should boost the stock and our options.  Hold tight for the earnings announcement in a few weeks.  The next resistance is at $80.  Support is at $65 and $60.

  GT Jan 2010 $20 CALLS (GTAD)
Goodyear has traded flat or down for the last two months.  It recently found support at the uptrend and started moving higher.  That’s a good sign the uptrend is still intact even after a few slow months.  Hold tight for now.  Resistance is at $22 and $25. Support is at $14 and $12.

Category: EOT Update

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