Earnings season can not only make or break a stock's quarterly performance, it can wreak havoc on even long-term options trades. In this article, I focus on several stocks set to swoon and/or stagnate, discussing how this underperformance can impact options plays. If you hold these stocks, at the very least, take a long, hard look at banking profits and living to fight another day.
Ford (NYSE:F). Disappointment does not begin to describe what I feel in relation to Ford. It's truly sad. The company missed earnings estimates for Q4, blaming the squeeze on commodity costs, exchange rates, the European debt crisis and floods and plagues. Cry me a river. At least, Ford did not blame Canada.
The company's stock was doing so well, meeting the obvious challenges I outlined over the course of the last week or two:
Challenge #1: Close above $12.00 for several days in a row. Hold that level.
Challenge #2: Bust through the 200-day MA like it did the 5, 20 and 50.
Challenge #3: Break resistance around $12.50 and hold for several days in a row.
A look at F's chart, intraday Friday, courtesy of FreeStockCharts.com, shows hope probably got lost for at least another couple months or so.
Herein lies the problem with the type of trade I put on last year via F options. I know it does not look like it now, but you're much better off being in F Jan 2013 $10 calls, for example, than you are my misguided F Jan 2013 $20 calls. Don't let the $0.02 drop in the $20s and the $0.40 decline in the $10s fool you. As I write, this percentage change is actually worse in the OTM calls. But that's neither here nor there.
If you remain a believer that F can bounce back, both near-term from a technical standpoint and long-term fundamentally, you live a pipe dream if you jump into deep OTM calls or hold onto any that you own. F will have to become one of the stories of the year from that trade to do anything close to well. On a long-dated, deep ITM call, a far more modest recovery could work relative wonders.
Sirius XM (NASDAQ:SIRI). While I am sure more than two reasons exist, many SIRI longs do not like the fact that I predict the course for their stock because (1) I have been wrong about it before and (2) they have some level of difficulty facing reality.
Based on the chart alone, it's clear we have a familiar and not-so-positive pattern developing here:
Sirius XM will report earnings on Thursday, February 9th. I said earlier in the week and I will say it again. The company absolutely must tell us more than we already know. There has got to be some meaningful piece of fresh news, a guidance hike or better-than-expected subscriber sightings shaping up in 2012 or the stock will sell off on the report or shortly thereafter.
Don't get caught in what is almost a too-easy-to-predict downdraft. If you're bullish, I can see the logic, but proceed with caution. At the very least, sell some puts to pick up more shares if a move down does occur and be sure to stay away from the death trap of $2.50 and $3.00 lottery ticket calls. If I have a cost basis in this thing below $1.50, however, I'm out. While the penny stock dream of moving from the outhouse to the rowhouse came true, too many headwinds exist to keep SIRI from the penthouse.
Disclosure: I am long F.
Additional disclosure: I intend to sell half of my F options, at least, on the inevitable bounce.