“Hidden” Earnings Candidates

Plus, Sell SNDK Calls

By Bryan Bottarelli
Monday, October 24, 2011 9:37 AM EDT
Mon, 24 Oct 2011 13:37:00 GMT

PLAY: Sell your SNDK November 48 Calls (O:SNDK 11K48.00) at market, good for the day.

Dear Bottarelli Research Member,

Good morning. We’re in the heart of Q3 earnings season, and this week is chock full of high-profile reports. For example, you’ve probably already heard about strong numbers from Caterpillar (CAT – NYSE). This will be followed up by Cummins (CMI – NYSE), F5 Networks (FFIV – NASDAQ), and DeVry (DV – NYSE), all of which report on October 25th before the market opens. Then, Amazon.com (AMZN – NASDAQ) reports after the close on the same day.

On the 26th, we have Ford Motor Company (F – NYSE) and Visa (V – NYSE). Then on the 27th, we have O’Reilly Automotive (ORLY – NASDAQ), Cerner (CERN – NASDAQ), and First Solar (FSLR – NASDAQ).And on the 28th, we have Cliffs Natural Resources (CLF – NYSE).

Now I admit, every one of these names has the potential to make a big earnings move. But unfortunately, none of them fit our profile for a successful earnings strangle play. Either the premiums are way too high, the strike price increments don’t fit our model, or the position just doesn’t look like it puts the odds for success in our favor. In situations like this, we’re smart enough to avoid the lure of over-paying just to be part of the hoopla for earnings from Amazon for example. Rather, we’d prefer to select the names that fit our model and are quietly shaping up to be winning plays. While they’re somewhat hidden, they are indeed out there. More on this in a moment.

But first, when it comes to our SanDisk (SNDK – NASDAQ) position, we’re holding the SNDK November 48 Calls (O:SNDK 11K48.00) with a break-even price of $3.50. With the calls now trading above that level, let’s use this pop to close out the position now and then we’ll move into other plays without any loss. Actually, it’s now a slight gain. Here’s the manuever…

PLAY: Sell your SNDK November 48 Calls (O:SNDK 11K48.00) at market, good for the day.

I’ll follow up on our “hidden” earnings candidates later in the session.

But until then…

Lock and load!

Sincerely,

Bryan Bottarelli
Editor, Bottarelli Research
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