By Don Fanstone, Member Kitchener/Waterloo User Group
Earnings Drive Stock Prices. Be Aware of Earnings Release Dates:
Companies that have a history of increasing earnings consistently, quarter after quarter, year after year; see their success demonstrated in the stock price, resulting in a stock graph that moves steadily, lower left to upper right.
Opportunities arise with earnings release dates.
Dollarama is a stock that I have followed for some time. Actively following winning companies, reading about new store openings, reading about rising sale prices of goods, (Now above $3.00), checking VectorVest scores and obtaining independent research where available gives clues to where the stock price may be headed. All of this is added to what is occurring on the VV stock graph, rising trading volumes, rising stock prices, new price highs and rising DPO values. With the earnings release date approaching, you have two choices, be aggressive and buy the stock or options prior to the earnings release date or conservatively wait until after the announcement. In both cases, you would prosper.
Dollarama announced on yahoo that fourth quarter and year end results would be released on March 25. On March 12, the DPO started a day by day climb higher.
On March 17, the 5 DMA started to move above the 10 DMA at a steeper angle. From March 12, every day was an “UP” day with a green column in volume. On March 16th, the stock hit a new Price high.
10 July 56 Call Options were purchased on March 16th at $8.80. Even though the announcement was imminent, the trading plan calls for buying time insurance, hence the July expiry. The stock closed at $63.77 that day.
The strike price of $56.00 came from the VectorVest’s Options Analyzer, being a delta of .80.
With the stock price rising each day, it appeared that the earnings announcement would be positive. On March 25th, the stock opened at $67.23 and climbed steadily. The Calls were sold at $13.40 for a gain of $4,600. (52%) The stock continued higher to $71.00 and retreated later in the day to $68.10. Money was “Left on the Table” when the option was sold, and that’s a judgement call when the trade is closed.
Option Trades since March 22th.
5 SWKS Aug. 85 Call Options at $27.75 on Monday March 23rd.
Skyworks has been heading straight up; it was the VV No. 1 stock for the week, and VV suggested it was a BUY for Prudent investors. I had sold Aug. 75’s the Friday previous and had some insurance money to hedge. On Monday the stock had a red candle day, and a red candle on Tuesday. Not a good sign! On Wed. the market cratered and the stock dropped to $95.57, on Thursday it dropped further to $93.04. With SWKS having an RS of 1.44, a CI of 1.88, and a VST of 1.56, I chose to stay the course. Friday was a vindication day with a price rise to $98.83. Volatility such as this is only soothed by high VectorVest RS, CI, and VST values and time to get back on track.
10 DOL July 56 Calls @ $13.40 for a profit of $4,600.
With the market in a Down/Down condition, I do not recommend buying Call Options at this time.
A trade at this time is to consider the advice of “Grin and Bear It”, the VV Strategy of the Week.
Sell Covered Calls on Stocks you own, either at the money, or one strike out, with a 30 day expiry. Option prices are not attractive unfortunately, do this only if the income received is worthwhile and you are prepared to be called away.
I encourage all to read Lee Lowell’s book “Get Rich with Options”, go to VV University and watch the Video on Options, and read Dr. DiLiddo’s article in the Views Manager under Special Reports, and attend the VV Options Course.
Understand Options Before you begin to trade, there is much to learn.
DISCLAIMER: Options trading involves risk and is not suitable for everyone. The information contained in this Blog is for education and information purposes only. Example trades should not be considered as recommendations. Options training is strongly recommended before placing any trades. VectorVest offers a basic options course online and occasional intermediate options workshops in Canada each year.