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Posts Tagged ‘GMCR’

Two Earnings Play for This Week – Deere and Sina

Monday, May 13th, 2013

 The Green Mountain Coffee Roasters (GMCR) spread I recommended last week resulted in a 20% gain.  Not bad considering we were blindsided by their announcing a new 5-year deal with Starbucks that shot the stock 25% higher while we were betting on a lower post-announcement price.  Our gain was not as great as last week’s 50% gain on Apple, but we will take 20% anytime (I’m sorry, but I executed the Apple spreads in a Terry’s Tips portfolio and did not share it with the free newsletter subscribers).

 

 

 

This week I have two earnings-related plays which need to be made before the close on Wednesday if you want to participate.

 

 

 

If you read down further, there is information on how you can become a Terry’s Tips Insider absolutely free!

 

 

 

Terry

 

 

 

Two Earnings Play for This Week – Deere and Sina

 

 

 

Sina Corporation (SINA) is pretty much the same as Yahoo but operates in China.  I have written a Seeking Alpha article about the company – How To Play The Sina Corporation Earnings Ann… in which I explain why I believe that the stock will probably dip a bit after Wednesday’s announcement (largely because expectations are high, the current valuation is pricey, and hedge funds are selling shares).

 

 

 

I recommended these trades to play the SINA announcement with the stock at about $59:

 

 

 

BTO 10 SINA Jun-13 55 puts (SINA130622P55)

 

STO 10 SINA May-13 55 puts (SINA130518P55) for a debit of $1.01  (buying a calendar)

 

 

 

BTO 10 SINA Jun-13 57.5 puts (SINA130622P57.5)

 

STO 10 SINA May-13 57.5 puts (SINA130518P57.5) for a debit of $1.11  (buying a calendar)

 

 

 

BTO 10 SINA Jun-13 60 calls (SINA130622C60)

 

STO 10 SINA May-13 60 calls (SINA130518C60) for a debit of $1.18  (buying a calendar)

 

 

 

These trades should make a gain if the stock goes up by less than 5% or down by less than 10% by Friday at the close.

 

 

 

The other earnings play involves Deere & Co. (DE) which has the unenviable record of falling four straight quarters after announcing, even when they bested expectations.  I have also written a Seeking Alpha article on this play – How To Play the Deere & Company Earnings Announcement.

 

 

 

Expectations are high here, too, and I expect a lower price than the current $93 after earnings.  Here are the spreads I am making in Deere:

 

 

 

Buy To Open 10 DE Jun-13 95 puts (DE130622P95)

 

Sell To Open 10 DE May-13 92.5 puts (DE130518P92.5) for a debit of $2.35  (buying a diagonal)

 

 

 

Buy to Open 5 DE Jun-13 90 puts (DE130622P90)

 

Sell to Open 5 DE May-13 90 puts (DE130518P90) for a debit of $.90  (buying a calendar)

 

 

 

These spreads will do well if the stock falls but start to lose money if the stock moves more than $2 higher.

 

 

 

Please check both Seeking Alpha articles for my complete reasoning for these spreads as well as a risk profile graph for each.

 

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Posted in AAPL, Earnings Announcement Options Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Update on the Green Mountain Coffee Roasters (GMCR) Trade

Thursday, May 9th, 2013

Update on the Green Mountain Coffee Roasters (GMCR) Trade

 

On Monday, I wrote to my free newsletter subscribers and recommended the following trade in advance of the company’s earnings announcement after the close on Wednesday:

 

Buy To Open 10 GMCR Jun-13 52.5 calls (GMCR130622C52.5)

Sell To Open 10 GMCR May2-13 57 calls (GMCR130510C57) for a debit of $3.70 (buying a diagonal) 

 

This spread would make a gain for the week if the stock managed to fall by less than 10%, stay flat, or go up by any amount.  The maximum gain would come if the stock fell by about $2 (to $57) after the announcement.

 

I also wrote a Seeking Alpha article explaining why I believed that the company would exceed expectations but the stock would fall slightly after the announcement for a couple or reasons (primarily because expectations were so high) – How To Play The Green Mountain Coffee Roaster…

 

My analysis on the earnings announcement was right on the money, but the company also disclosed that they had signed a 5-year deal with Starbucks (SBUX) that caused the stock to shoot higher by about 25%.  In my defense, there was no way I could have known about this wonderful news for GMCR stockholders.

 

I was able to sell the spread for only its intrinsic value ($4.50) because the stock had moved so much higher.  That resulted in a gain of 20% after commissions for the trade.

 

In most investments, a 20% gain in three days would be considered a fantastic return.  Actually, I was a little disappointed. I could have made double that amount if the
Starbucks news had come along at some other time than today.

 

Over a million dollars was invested in the GMCR Jun-13 52.5 calls on Monday after I made my recommendations, double or triple near-by option volume.  Clearly, lots of people heeded my advice.  I hope they are satisfied with a 20% return for the week.  I guess I am, reluctantly.

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Posted in Earnings Announcement Options Strategy, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

How to Play the Green Mountain Coffee Roasters Earnings Announcement

Monday, May 6th, 2013

The spreads I suggested buying a week ago in advance of the Questor (QCOR) earnings announcement resulted in a gain of 13.6% for the week.  We were correct in the direction the stock would take (higher) but we underestimated how much it would rise.  We lost money on the calendar spread but made it back and more in the vertical spread we placed at the same time.

 

While we were disappointed with our return, 13.6% per week on an annualized basis works out to a pretty big number.

 

This week I am sharing what I believe is one of the best option investment possibilities I have seen in a very long time.

 

If you read down further, there is information on how you can become a Terry’s Tips Insider absolutely free!

 

Terry

 

How to Play the Green Mountain Coffee Roasters Earnings Announcement

 

For the three following reasons, I believe that Green Mountain Coffee Roasters (GMCR) will exceed expectations when they announce earnings after the close on May 8, 2013:

 

  1. The company has matured under its new CEO (from Coca-Cola).
  2. Raw coffee prices have fallen steadily and single-cup prices have not been reduced.
  3. Hedge funds have started buying stock heavily.

 

Since there is often a big difference between how good earnings might be and what happens to the stock price, there seems to be conflicting indications on what the price of GMCR might be at the end of the week.  Most importantly, expectations seem to be sky-high.  Whisper numbers are 8.3% higher than analysts expect, and the stock has steadily climbed by 30% over the last quarter.  Many times, unless there are blow-out earnings such as we saw in Netflix a couple of weeks ago, the stock trades lower.

 

On the other hand, short interest (39% of the float) continues to be exceptionally high (bringing the possibility of a short squeeze).  If earnings do manage to exceed expectations as I think they will, there might be a lot of short covering that will boost up the stock price.

 

Bottom line, I think the most likely scenario is that earnings will be good and the stock dips a bit.  With this in mind, here is the spread I placed this morning in three Terry’s Trades portfolios as well as my personal account:

 

Buy To Open GMCR Jun-13 52.5 calls (GMCR130622C52.5)

Sell To Open GMCR May2-13 57 calls (GMCR130510C57) for a debit of $3.70 (buying a diagonal) 

 

This spread should make a gain if the stock falls by less than 10% after the earnings announcement, stays flat, or goes up by any amount.  If the stock fluctuates only slightly, a gain as large as 50% might result.

 

Later today, Seeking Alpha will probably publish an article giving fuller details of my reasoning outlined above.  The title will be How to Play the Green Mountain Coffee Roasters Earnings Announcement.  If they don’t publish it (presumably because it is too much a pure options play), I will send you the full article later today.

 

I feel very good about this spread.

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Posted in Earnings Announcement Options Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Options Strategy for the Green Mountain Coffee Roasters Earnings

Tuesday, February 5th, 2013

 

 

After the market close tomorrow, Green Mountain Coffee Roasters (GMCR) will announce quarterly and year-end earnings.  I am quite bullish on the stock, and have written a Seeking Alpha article explaining why – Why Green Mountain Coffee Roasters Will Soar This Week 

(I apologize for its being so long, but as Abraham Lincoln once said in a letter he wrote to a friend, I didn’t have enough time to make it shorter.)

Options Strategy for the Green Mountain Coffee Roasters Earnings

If you I have a strong feeling for a particular stock prior to their making an earnings announcement, there are a couple of strategies I like to employ.  I would like to tell you about one of them today.  It involves a little hedge just in case I am wrong (with this hedge, I won’t lose all my money). 

 

An aggressive strategy if you were very bullish on a stock would be to sell an at-the-money put in the shortest-term option series available (for GMCR, (that would be the Feb2-13 options expiring on Friday February 8, two days after the Wednesday after-close announcement).  Option prices in this series tend to escalate to about double or triple their usual implied volatility, making them very “expensive”.  Since you don’t want to sell any option all by itself (they call that naked selling because that’s how you feel whenever you do it, totally exposed), you must buy some other  put to cover yourself (and avoid a horrendous margin requirement from your broker).  If you bought lower-strike Feb2-13 puts, you would collect a credit on your spread sale (called a vertical put spread), and there would be a maintenance requirement of $100 for each dollar of difference  between the strike prices. 

 

For example, with GMCR selling about $48, you could buy a Feb2-13 43 put and sell a Feb2-13 48 put and collect about $2.  There would be a maintenance requirement of $500 less the $200 you collected from the vertical spread sale.  Your maximum loss is $300 and this would come about if the stock fell to below $43 from the $48 where it was before the announcement. 

 

With this spread, you are hoping that the stock closes on Friday at any price above $48.  If it does, both your long and short puts will expire worthless and you save paying commissions on closing out the positions.  You just end up with $200 (per spread, less commissions) in your account and the maintenance requirement goes away.  You would have made about 65% after commissions on your $300 at risk. 

 

What I do (the hedge) is a little different.  Instead of buying the lower-strike put in the same series, I go out to a longer period series.  I might buy a Feb-13 43 put (which expires February 15, a week later) instead of the Feb2-13 43 put.  It would only cost me about $.30 more (i.e., I would collect about $1.75 instead of $2.00 at the beginning), but if I wrong about GMCR and the stock falls instead of moving higher, this put might have a decent value when the Feb2-13 45 put expires in the money.  If the stock is below $48 at expiration, I will buy it back on Friday and sell my Feb-13 43 put at the same time.   

 

If the stock falls over $3, I will probably lose money on the original spread, but I will gain some of the loss back from selling the Feb-13 43 put.  It is not a perfect hedge, but it reduces the maximum loss from $300. 

 

I have placed this exact spread in my personal account – it is called buying a diagonal put spread.  I received $1.75 and hope to collect that much per spread on Friday (plus whatever I can collect from selling the Feb-13 43 put that that has a week of remaining life.

 

 

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Posted in Earnings Announcement Options Strategy, Last Minute Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

An Interesting Options Play for Green Mountain Coffee Roasters

Monday, October 22nd, 2012

If you like a stock, there is a much better way to make money on it other than buying shares.  The answer is to use options, of course.  Today I would like to share one simple trade you can make as an alternative to owning the stock.  It should gain over 50% in two months even if the stock does not go up by a penny.  If the stock falls by 10% over that period, you should make about 20%.  Meanwhile, people who bought the stock would have absolutely nothing to show for their investment (except maybe a loss).

Why would you ever buy a share of stock when options could deliver these kinds of returns?

An Interesting Options Play for Green Mountain Coffee Roasters

Green Mountain Coffee Roasters (GMCR) has had a rocky year, but for the last few months it seems to have stabilized and might be worth a second look (especially if you could make 20% or more on it with options in just two months as I propose here).  First, check out a recent Seeking Alpha article Green Mountain: Stock Is A Good Brew.  It might give you a little confidence in the stock.
 
In the interests of presenting both sides, check out the downside case, also at Seeking Alpha – Stay Away From Green Mountain Coffee.  However, even this critic advises against shorting the stock. 

GMCR is selling at 9x or 10x earnings and doesn’t appear likely to have a big sell-off in the near future.  One option investor recently made a huge options bet that the stock will move higher – see Bulls Smell the Coffee at Green Mountain.  These options could return $5 million to the buyer if the stock is above $30 when the November options expire on the 17th.

The option strategy I suggest should make about 20% in two months even if GMCR falls by 10% over that time period.

I have watched this company for many years.  It is located in my home state of Vermont.  I used to play tennis with its founder, Bob Stiller, every week.  (I don’t want to brag, but I remember that I won about 90% of the matches – he seemed to be more interested in growing his company than staying in tennis shape.)   Just today, Bob donated $10 million to Champlain College, a local business school that has also been one of my favorite charities (and where I was a trustee for 11 years).

Here is what the risk profile graph looks like for the stock (currently trading at just under $24).  These positions cost about $2700 to put on:

 

The graph shows that a nice profit averaging over 30% can be made in two months at any ending price on December 21st which is higher than $22, and a profit of some sort at any price higher than $20.50.  This downside break-even point would mean that the stock fell by 14% from its current level.

Here are the actual positions that create the above risk profile graph:

 

I used 10 diagonal call spreads, buying January 2013 calls and selling December 23 calls for about $2.70 ($270 per spread).  This simple trade is far superior to owning the stock as far as I am concerned.  If the stock falls 10%, you still make about 20% on your investment.  If the stock stays exactly where it is on January 18th you should earn almost 60% on your money.

Why would anyone buy the stock when they could place a simple spread like this and make money even if the stock goes nowhere or even falls by as much as 10%?  It just doesn’t make sense to me.

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Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

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Posted in Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | 2 Comments »

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