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I professionally short term trade S&P 500 futures for a living. I'm diligently working to add new tools to my box. Short term trading is a different game than valuing a company or finding growth stocks but I'm still very much interested in doing so. I'm inspired by the group at Cornwall... More
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  • DMND A Favorable R/R Using Options

    Some other posts on DMND drew the stock to my attention because I'm interested in trading anything where I can limit my risk and still reap large rewards. After some work here's a summary of what I came up with.

    What I know....

    DMND has fallen about 80% from it's high mostly because of an accounting issue that involved their CIO and CEO (who are no longer with the company now). There was some issue with them fudging their profits related to how they paid their walnut producers.

    DMND missed out on buying Pringles (which the market seemed to like for them) and Kellogs got it instead.

    DMND has been issued a de-listing notice from Nasdaq because they haven't met their deadlines on re-stating earnings.

    What we don't know...

    When will they restate earnings?

    How bad will it be?

    My Plan

    I try to keep things really simple so my plan is to limit my risk in this trade by playing options. I have gone long the Sep 2012 25 calls and the Jan 2013 25 calls. I did some of each because I don't know when DMND will restate earnings but I'm guessing/hoping that it will have to be soon with the Nasdaq de-listing threat buzzing over their heads. As a side note: Apple in 2006 received a de-listing threat from Nasdaq because of how they dealt with their stock options with employees. This kind of thing is only a side issue compared to the earnings stuff but resolving it could be a positive catalyst. My risks are very low on this trade and any kind of restatement that shows things aren't horrible and I'd have a chance to make multiple times what was invested. If things are terrible then it's a risk worth taking and my losses are limited to small premiums. I'm not a fan of owning this company because I don't know that much about them. I'm just banking on the fact that it seems to make sense here to take this risk for a trade if the worst case scenario is avoided. The timing on this "event" is anyone's guess. Happy to hear comments and we shall see how it shakes out.

    Disclosure: I am long DMND.

    Additional disclosure: Long calls only

    Tags: DMND, Options
    Jul 07 12:52 PM | Link | Comment!
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