Splitting the Difference on PTEN

Lock in HALF of Your Gains

By Bryan Bottarelli
Wednesday, March 29, 2006 1:19 PM EST
Wed, 29 Mar 2006 18:19:00 GMT

PLAY: Sell half of your PTEN May 30 Calls (NZQ EF) at or above $1.80, good for the day. Hold the remaining half.

Dear Bottarelli Research Member,

Tomorrow at 10:00 ET, Patterson-UTI Energy (PTEN – NYSE) will report their Q4 earnings. Reuters is estimating earnings of $0.73 a share versus $0.23 this time last year. Without question, the number looks to be very strong — year over year. But from a trading perspective, it’s always what the company says about future earnings that make or break these announcements.

Typically, Wall Street wants to hear a great number followed by increased guidance — that’s when you see the stock really shoot to the upside on announcement days. If a company comes in at or lower than expected — or if they guide lower over the next quarter — that’s when you typically see a sell-off.

As it stands, we’re holding PTEN May 30 Calls (NZQ EF) going into tomorrow’s announcement. We entered these calls yesterday for $1.55 and they’ve currently traded as high as $1.85 today — good for a quick and easy 19.35% gainer.

I’m expecting tomorrow’s guidance to be positive — but I can’t ignore the fact that it could possibly be negative (or at least be perceived as negative by The Street). In situations like this, the smart (and safe) tactical move is to lock some of your profits by selling HALF of your position. That way, you’re limiting some of your risk by taking a fraction of your gains off the table now. As for the other half, we’ll let that ride into the announcement tomorrow — and hopefully we’ll experience a positive result.

PTEN

Of course, there are those “swing for the fences” traders out there who will probably hold their entire position into tomorrow. If you’re willing to accept the risk, that’s perfectly acceptable. On the flipside, there are those “risk-averse” traders out there who will probably take profits on their entire position and be content with the quick profits. That’s perfectly acceptable as well. As your editor, I simply felt the need to advice you on the best tactical way to play PTEN — and selling half now and letting the other half ride represented the best all-inclusive solution.

PLAY: Sell half of your PTEN May 30 Calls (NZQ EF) at or above $1.80, good for the day. Hold your remaining half.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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