I am Selling Some CHCG at These Levels

In case anyone bought into CHCG a few days ago, I would suggest taking some profit at these current prices. I managed to sell about 40% of my stake at $7.20/share, but anything about seven dollars is a nice profit (almost 15%).

Congrats to all and good luck longs!

Straddle Time!

I mentioned before in my series on options trading how to make money if you are unsure which way the stock may go in the future. I also pointed out that options are a zero sum game, making them inherently riskier than stocks. With that being said, I feel that investors have a significant chance of making money by using a straddle on Affiliated Computer Services (ACS) going into earnings.

Let's review the key elements of an attractive straddle. One of the most important aspects of a good straddle is the current price of the stock. The closer the price is to strike price of the call and put you are going to purchase, the better the straddle play is. The second most important part of the straddle is the costs to straddle. The cost is cheap if the break-even future prices are significantly less than your predicted future movement. The third most important part of a straddle is the time value of your option position; the longer you have to sell your call and put the less risk you are taking on.

Given these elements here's how ACS stacks up:
- The current price of the stock is only 9 cents away from the $60 strike price.
- I managed to pay $1 for both the call and put, meaning the stock would only need a 3.69% increase or a 3.46% decrease to be in the money given my broker’s options trading fees. As you can see from the Bloomberg image below, this straddle would have been in-the-money five out of the last six sessions after the earnings report.
- If you do take this position, you have the luxury of waiting until the 19th of May to liquidate your positions; a long time given this volatile market.

So why is this so cheap? There have been significant buyout talks driving the price of these options. I feel that this is insignificant because these talks have lasted for several months and it appears that shareholders are ultimately unsatisfied with these offers. In fact, I feel that this release will have a great impact on the bid price of this buyout firm, ultimately allowing for significant share price volatility.

DNA is Ready to Climb, RIMM Dangerous

Good news came this morning when investors reacted well to Alcoa's and Progressive's earnings beats. Yesterday, I suggested investors stay away form Alcoa and buy into Progressive. While I wrong about Alcoa, the stock only went up about 1.5%. Progressive, on the other hand, is up 5.2% on its modest beat. Good job to longs on both of these trades.

I like Genentech (DNA) going into earnings today. I have a little bias in this decision because I made a pretty nice profit buying this stock last quarter. What's unique about this play is the fact that the stock is trading near its pre-earnings price of last quarter. What does this mean? The stock has significant room to move back up to the $88.00/share it was trading at after last quarter's release. DNA's P/E is slighty above its peers, but not enough to warrant any significant downside potential if the numbers were to miss. DNA has also beat estimates each of the last four quarters. A history of success at a low price makes DNA my play of the day.


Finally, I want to caution RIMM investors. RIMM has a great history of beating the street, but the price changes the next day to not accurately correlate with the earnings beat. That being said, it appears pointless to speculate on this stock going into earnings, because any accuracy in your earnings derivation will not necessary result profits the next day.

Good Luck All!