Considerations:
o GMCR has been on a bullish run from September. Fundamentally, it is enjoying good sales. With the positive retail outlook towards the end of the year, GMCR should benefit as consumers increased their shopping before Christmas
o Stock is very bullish and it broke all time high.
o Green Mountain owns Keurig and the K-cups are very popular. If you like coffee you may want to consider buying a brewer. Every friend I recommended it to are enjoying their brewer and the variety of teas, coffees, cocoa etc that they sell
Trade:
BTO Jan 2010 70 call for 8.34
STO Nov 75 call for 3.74
Debit: 5 ( Risk )
PE: Exit the trade with a target ROI of 25%
SE: Roll the SC 75 if it goes ITM
If stock drops below 75, will convert the trade to a bear call calendar
Innovestor's comments:
o Today the stock gaps up before earnings. You should be ready to roll the SC up to 80 as any upside you will not make a lot of money. This stock is pretty bullish and thus a roll now make sense to ride on the momentum
o With hindsight I am placing a diagonal call calendar for this stock at 80/70
o STC Nov 80 SC at 3.25
o BTO Mar 2010 70 LC at 13.2
Debit : 9.95 ( Maximum Risk )
PE: Exit at 25% ROI or 12.43
SE: Roll the SC call up if it is ITM
If stock breaks down and hits < BE point of 72.85, I will convert the trade to a bear call calendar.
If stagnant - continues to sell call for another 2-3 months and hopefully get a risk free trade
Posts
Ted decided to make the following adjustment:
ReplyDelete"Since GMCR hit 77 today I would construct the following trade. Buy the Mar 75C for 10.3 and sell the Nov 80C for 3.3 for a debit of 7. It cost more but has a better potential of reaching the 25% ROI."
What is the adjustment when the PE has not been reached, and the earning report comes? The earning report is on Nov 10 AMC.
ReplyDeleteI think Joseph raised a very good point. We need to take care of earnings on Nov 10th.
ReplyDeleteI close GMCR diagonal calendar for a 10.4. The reason was that I forgot about the earnings date on Nov 10th. There is not enough time for time decay to work before Nov 10th.
ReplyDeleteSo I close it for a small profit of 4.5 % after 1 day!
It was a mistake. It is better to do another trade and not hold to poorly planned trade especially when it makes some money today
Ted update on trade on 10-26-2009 ( As stock touches below 75 on Friday 10-23)
ReplyDeleteMy cost basis in GMCR is 4.7. I am slightly profitable and with the stock at 74.64 there is 5.12 of extrinsic value in the Nov 75 SC. I will certainly hold this position up to earnings and make my decision to exit or roll the Nov 75 to Dec (depending on the credit). It does not concern me if it goes in the money before earnings, but extrinsic value and IV will influence my decision.
It was good that I closed the GMCR as earnings was near.
ReplyDeleteIndeed during earning date on Nov 12, it broke down. The trade would have lost money.
Interestingly, GMCR had a collapse of the Nov 70 SC IV (88 to 58) and TED order to sell the calendar at 3.6 filled. His cost bases was 3.09 so I was able to get an 18% ROI. Very lucky escape.