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.
Tags: Calendar Spreads, Calls, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, GMCR, implied volatility, intrinsic value, Portfolio, Profit, profits, Puts, Risk, Terry's Tips, thinkorswim, Volatility, Weekly Options