ER play for tomorrow 8/1

Thoughts on Earnings

Here is a list of stocks that are going to release their Quarterly earnings tomorrow.

UPL:

It is an earning beat plus short squeeze play. Current expectation is set to be 42 cents on revenue of $235 million. The current short interest is extremely high at 22.8%. This stock has been trending sideways for the last two months. A high-volume move above the upper end of its recent range post-earnings could trigger a big breakout trade for shares of UPL. I expect an EPS of 45 cents and meaningful beat in revenue. The projected price range on Friday is $1.

Trading plan:

Sell Aug 21p for 0.40

This is not a high volatile stock. I don’t expect parabolic movement tomorrow, thus a covered put short strategy is used. Long stock also works but I want to keep my exposure low at this moment.

Breakeven at 20.60. Max gain 0.40. Max loss 20.60.

  

AIG

AIG is expected to post a smaller profit for the second quarter as compare to last year’s net income of $2.33 billion, or $1.33 per share. The question is how much is the decrease. Analysts, on average, expect adjusted earnings of 86 cents per share, and $9.21 billion in net premiums written, according to FactSet.
Insurers like AIG collect premiums from customers and invest that money into bonds or stocks. Higher interest rates boost their earnings. Other than the monster tornado that struck Oklahoma in May, the insurer likely benefited from fewer major weather-related catastrophes in the U.S. this year. AIG is going to make less income from bond portfolios due to increasing yield and tapering expectation. Doesn’t matter how I plug my numbers, I still believe the chance AIG reports income less than $1 per share is really low.
If the earning is greater than $1, AIG has good chance to test 52 week high of 47.68. Projected movement is 46.57.
Trading plan:
Long 8/2 46c 0.72
Short 8/2 47c 0.40
Breakeven at 46.32. Net position is 0.32. Max gain is 1.00. Risk reward ratio is 1:3.
 

SYNA

Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Synaptics's revenues will increase 66.3% and EPS will grow 129.6%. The average estimate for revenue is $228.8 million. On the bottom line, the average EPS estimate is $1.24.

Earnings whisper is $1.38. I am expecting even more than that. SYNA should have no problem to be at 42. My problem is I cannot find good options to trade it.

I will simply short 38p to collect the premium of 1.20.

LNKD

Last year I said Linkedin makes sense, facebook not. Eventually FB crawl back to the IPO price of 38, while LNKD is a little bit more than doubled here. Tremendous user growth and diverse revenue streams are why people are paying such a high price for this stock. The different ways LinkedIn makes money make it different from any other social media company. LinkedIn also scales extremely well. The bigger the talent pool, the more companies will come to hire. This in turn draws in an even bigger pool.

I think it will beat the expectation, but I don’t have a plan yet. I will listen widely tomorrow for trading plans.

Romancing Alpha, Forsaking Beta

Barry Ritholtz made a very interesting speech recently, Romancing Alpha, Forsaking Beta.
I like it very much so I decide to copy the title over. Doesn't matter if you agree with him or not, doesn't matter your market view, it is another difficult time we have to face.

Market is confused. We frequently see 20 points either way. The market is expecting to see something in the Fed minutes. I know people starting to speculate on tapering. I think it may go down again and 1670 cannot hold. BUT I don't think it will crash either. I dare not jump off the train completely. That's why I closed my high beta stocks and hedged my low beta stocks.

It is stock picker's market again. It's time to forget the overall market and focus on alpha. Taleb says bio stocks are anti-fragile. I picked the following 2 for short term momentum trade. Hopefully they can provide some alpha in a fragile market.

MNKD

It is very volatile. I read it as another triangle breakout.  First target is 8.05. I will sell Aug call if it can be there next week.

Hourly chart suggests a stop at 7.20.

GTXI
This is a different chart. It is a hard-beaten stock.

 

I am not interested in fundamental analysis. Here is an article defending it. What attracts me is the Harami pattern formed on Friday. MACD also suggests oversold condition.

 

Hourly chart gives a better view. I think it should rebound to 5.20 area, consolidate a little bit then go up to 5.80s. The plan is the same. Sell calls when it gets close to 5.20. This one is higher risk, so the call premium is pretty fat. At Friday close price, stock closed at 4.72, August 5 call bid-ask at 1.05-1.15. The math looks like this:
(5.00+1.05)/4.72-1=28% or
1.05 / 4.72 = 22%

Both stocks will have Earning Release on 8/5. Consider dodge the risk.

Disclosure: I am long both MNKD and GTXI since Friday.

Back in town.

I am back from vacation in Canadian Rockies. Life is great there, except it is extremely expensive there. I tell myself I'd better make more money before next one.

Not much to update. Even with a crazy June dip, SPX is still in buy zone. The only other buy is Real Estate. Again this is the moment, bond is not safe. If taping is coming, Bonds will go down for sure. They are forcing us to invest in equities. I will provide couple picks later.