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Suz Smith
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I am an equity/options/futures trader with a strong background in TA. I am passionate about the markets and love to empower other traders using an earning while learning strategy. I work for McElhenny Sheffield Capital Management, a private wealth management firm that specializes in real time,... More
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  • Don't Be Afraid Of The Monster: MNST 0 comments
    Aug 9, 2012 12:18 AM | about stocks: MNST

    Monster Beverage Corp.'s (NASDAQ:MNST) second-quarter earnings rose 30% as the energy-drink company continued to post strong sales growth. However, shares fell 13% to $59 in after-hours trading as earnings and revenue missed analysts' expectations. (Google Finance)

    The majority of MNST's peers were down today:

    (click to enlarge)

    We'll keep this short and sweet. On the slightly soft earnings report, the stock sold off to a key support level, which is the 200ema.(click to enlarge)

    When we hit that magical green line, something nice happened, we bounced. If this chart could show the earnings candle, it would be a solid red candle with a big wick on the bottom.

    On this 4 hour chart you can see where earnings were reported, the selloff and the bounce off support:

    The stock has a solid level of price support at $62.50 on the weekly.

    (click to enlarge)

    As we've now tagged both short term and long term support levels, this stock is attractive as a medium term hold. The weekly chart is just now giving a buy signal, and what better place to put on a position that at a support level in the beginning of a new stochastic cycle. Remember this is the weekly chart, and it took a long time for price to fall to the oversold level.

    Once the knee jerk reaction is over with at tomorrow's open, it is plausible we see a nice move up in this stock. I went into earnings with several different positions - August & September 55/50 bull put spreads, covered calls (short the 67.50), covered calls (short the 62.50). A covered call is when you own the stock and sell a call option against it. In each of the positions, the call selected gave downside protection to $59.50 which is under the weekly support of $62.50. While the numbers might look ugly on paper first thing in the morning, these will still be successful trades as I believe the $62.50 support will be regained and held pretty quickly. I do have stops in place just in case as I don't tolerate "elevator trades" in my portfolio's. My plan of action is to roll down the September 67.50 short calls, and leave the rest alone. Significant premium has already been sucked out of the position, so the short calls will all be profitable at the open.

    In addition, with the tag of the 200ema in the extended trade, I picked up some common and will sell higher calls once the stock appreciates a little more.

    Options writers can jump in quickly and sell bull put spreads anywhere below $55 - or naked put writers can go much lower into the September 40/50 area and get decent premiums - the September 45 short puts should be around .60 or so in the early trade.

    Extreme moves generally correct themselves over time, therefore, with prudent option selection you can tailor both your risk and reward to your personal tolerance.

    The flip side of this is that you need to know your trade, own your trade and have confidence in your ability to execute quickly if the trade goes against you. Each trade has a line in the sand, and if that line is violated, it is exited without question.


    Questions or Comments? Email me -


    If you like these articles, click follow!

    Disclosure: I am long MNST.

    Additional disclosure: Disclaimer: MSCM and/or I have a position in this stock which may or may not be exited without advance notice. Data is provided for informational and educational purposes only and is not offered as investment advice. Timing of transactions can be critical to the success of a position. MSCM, its employees or owners shall not be liable for any errors or delay in the content, or for any action taken in reliance on any content provided within. Opinions expressed here are the sole opinions of the author and not representative of any firm view.

    Stocks: MNST
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