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We are a poweful option trading newsletter that focuses on momentum stocks. Momentum can be used to the upside or downside to play call and put options on stocks that are in a clear trend. We target triple-digit returns for all option trades while trying to keep losses at 50%. We have 6-year... More
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  • Bulls Looking to Hold Momentum, EA (ERTS) Rocks 0 comments
    Feb 2, 2011 9:09 AM
    9:00am (EST)

    You got to know when to hold 'em, know when to fold ‘em, know when to walk away, and know when to run...

    Our man, Kenny, was right on with these words and if you trade options then you might be a good poker player as well.  The two skills are very similar in that you have to be able to read people or the market, make educated bets when the opportunity arises, and try to build you chip stack or portfolio.  You also have to have an uncanny ability to "feel" certain situations and "envision" things that other players or investors can’t see to be able to survive for the long haul if you want to make a living at either job.

    A lot of investors were nervous last Friday when the bears went "all-in" and some of the bulls folded like a cheap lawn chair when it came time to call the bet.  When you are forced to risk a good portion of your chip stack, it's either going to be an easy bet because you know you have the best hand, or, it's going to require some thinking because your opponent just might have the better hand.

    It is at these times, great poker players and option traders make their mark...

    We stayed long and strong and held on to our cards (trades) last Friday because we wanted to see the "turn" and the "river".  And the dealer/ bulls didn't let us down.

    Monday was the "turn" as the bulls rebounded off Friday's lows while Tuesday's card was the "river".  Needless to say, we were happy after the bulls swept the pot by clearing Dow 12,000 and S&P 1,300.

    Just like poker, we envisioned a winning hand with our current trades when it came down to it so we stuck with them.  The market soared on Tuesday as the bulls finally took out two important targets with pocket Aces.

    The Dow surged 148 points, or 1.25%, to settle at 12,040.  The blue-chips hit a high of 12,050 and we said a break and close above 12,000 could provide some fluff up to 12,300-12,350.

    The S&P 500 jumped 21 points, or 1.67%, and closed at 1,307.  The index kissed 1,308 and we now have our sights set on 1,325 with a possible run up to 1,350.

    The Nasdaq rocketed 51 points, or 1.89%, higher and finished at 2,751.  Tech traded to 2,755 and is just below the high of 2,766 which was hit on January 18.  This area was tested several times last week and our target for the index remains 2850-3,000.

    We got some more good news after the bell as Electronic Arts (ERTS, $15.62, up $0.03) zoomed 10% in after-hours trading last night.  Shares were up over $17 after the company announced earnings which were crummy but Wall Street liked what it heard going forward.

    The company posted a wider-than-expected loss but the story was the announcement of a $600 million share buy-back and the strength of their digital strategy.  EA missed revenue expectations by $30 million but managed to come in with "adjusted" earnings of 57 cents a share which was actually higher than analysts' "adjusted" numbers by 2 cents.

    We said a few months ago that the company was in the midst of a turnaround and that digital gaming is where it is at.  In fact, we recommended call options and here were our thoughts when shares were under $15 in early December:

    "Shares of EA are near 52-week lows and we think they have found a bottom.  There is a little buzz back in the Gaming industry and EA is a powerhouse.  The company is well-positioned for the growing popularity of online play and is a likely takeover candidate.  The stock is cheap at current levels." (NYSE:END)

    Not to pick on anyone, but there was an analyst who came out before the closing bell yesterday who reiterated their "sell" rating on the stock.  The dude gave valid reasons for shares dropping to $12 but in the end he couldn't see the forest through the trees. He totally underestimated where gaming was going. EA said they should do $750 million in digital revenue for their fiscal year and you would imagine sales will top $1 billion their following year.

    We are hoping our call options can double on the news today and this morning shares are at $17.30 in early action.  The call options we recommended were "cheap" out-of-the-money options and this was the news we were banking on. These are the diamond-in-the-ruff trades that require a lot of homework and it either pays off or your countless hours and theories are wasted.

    The 52-week high for EA is $20.24 and we would love to see a close into the high teens today. If so, then we should be good to go.

    Futures are pointing towards a slightly lower open: Dow (-9), S&P 500 (-2), Nasdaq 100 (-5). If we do have a flat day or the bias is towards the downside, we would like to see the Dow and S&P 500 hold their shiny new numbers.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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