PLAY: Buy the SNDK February 31 Calls (SWF BF) and the SNDK February 28 Puts (SWF NB) at market, good for the day. The total cost should be around $2.50. Do not place a sniper sell or stop limit at this time.
Dear Bottarelli Research Member,
After the close on Thursday, flash-memory leader SanDisk (SNDK – NASDAQ) will report their latest earnings results. In my opinion, the company is getting set up for a classic “sell on news” situation. As you can see from the chart below, SNDK has just enjoyed a rally that pushed shares from $21 up to $32. That’s a 52% gain in just over a month! But after hitting $32, the shares have pulled back to $29.50 leading into their earnings report.
In a case like this, where most of the good news has already been priced into a stock, you typically see floor traders use an earnings release as a reason to sell. If this trigger gets kick-started on Thursday, SNDK really has some room to fall. For example, a move down to $26.00 is quite realistic. But a further move down to $22.00 represents the best support level. That’s quite a fall from current levels around $29.50. Because of this situation, I’d like to enter into another earnings-based strangle. But unlike our previous positions, I’d like to bias our call/put selection to reflect a downside bias. That way, if SNDK does fall (as we anticipate), our position will reflect this drop and offer us a better return. And just in case we’re wrong, and SNDK continues to blast higher, our calls will offer at least some buffer. On that note, let’s get positioned!
PLAY: Buy the SNDK February 31 Calls (SWF BF) and the SNDK February 28 Puts (SWF NB) at market, good for the day. The total cost should be around $2.50. Do not place a sniper sell or stop limit at this time.
NOTE: When it comes to these earnings plays, this one is a little more on the speculative side. Taking a directional bias adds an added element of risk. But if we’re right, the reward could be greater as well. Therefore, please take this is into consideration when deciding whether or not to enter this play.
In other news, our MOS February 60 Calls (MOS BL) and GMCR February 85 Calls (QGM BQ) are both making nice recoveries today. If we see an earnings run tomorrow on GMCR, I’ll probably be tempted to take the profits off the table before the close of trading. More to come. We’re also seeing a recovery in our upside hedge play, the SSO February 38 Calls (SUC BL). Hold.
For whatever reason, our ICE February 105 Calls (ICE BA) are not cooperating today. Based on yesterday’s upgrades, and their upcoming earnings on February 10th, this is a position that has multiple upside triggers. Reading the ICE chart is not easy, but if we can catch a bounce, the upside can be powerful. Maintain our calls, and if we hit a support level, we just might add. I’ll let you know.
Then, we have our IOC February 70 Puts (IOC NN), which have rebounded nicely from the freak upside move that resulted in (what I considered) a manufactured news release. As you can see, the stock is almost back down to where it was before the announcement hit. If I were to guess, George Soros and his hedge fund (who own over $110 million worth of IOC shares) have been quietly using this announcement to incrementally sell off their position. If that’s the case, we should remain positioned to the downside. Hold.
And finally, our HOG February 24 Puts (JOZ NH ) hit a high of $1.33 today, which pushed our entire basket slightly into the black. All we need is one more downward push, and we’ll be ready to sell these puts for a gain. Hold.
And as always…
Lock and load!
Sincerely,
