Tuesday, February 8, 2011

Earning Plays (Announcements Later Today/This Week)

I am currently positioned for earnings announcements in the following four companies:

(1) Take-Two (TTWO) [naked long] - The company seems somewhat undervalued. In addition to being a ripe takeover candidate, it also has had a lot of positive developments independent of its Grand Theft Auto (GTA) franchise - specifically, with the release of two massively popular and profitable games: NBA 2K11 and Red Dead Redemption. TTWO also has a number of other promising projects in the pipeline and will likely soon announce a release date for the latest version of GTA.

I purchased fifteen February $13 calls (on 1/31), at a total cost of $625.75. (I am already sitting on a gain of 250% on this trade. I might sell a few contracts before the close/earnings today).

(2) Open Table (OPEN) [somewhat hedged, with a long bias] - This is the most volatile earnings play I am in right now. I won't get into all the numbers, but I opened this play as a straddle - long Feb $80 calls and long Feb $70 puts. I cashed in those calls, bought other calls, and still have the puts.

So, going into today's earnings (having booked about a $450 [80%] profit), I am now long:

- three Feb $85 calls, at a total cost of $1451.5
- three Feb $70 puts, at a total cost of $580.75

(3) Akami (AKAM) [naked long] - Right now, I have a very small position, looking for a further taste of the ongoing bandwidth party (see JDSU and CIEN).

I purchased two February $50 calls (on 2/8), at a total cost of $309 . I will likely add to or change this position before earnings tomorrow.

(4) Expedia (EXPE) [naked long] - a play on renewed air traffic in a slowly improving economy.

I purchased ten February $25 calls (on 2/4), at a total cost of $889.50. Earnings Thursday.

As should be evident, I have shifted somewhat towards a bullish bias in my earnings plays. I shifted both because of general market conditions, which have been decidedly (irrationally?) bullish, and because I have experienced some losses (or limited gains) in recent weeks because I hedged positions in companies that produced very good (but not spectacular) earnings. Given the favorable conditions, the prudent move at present seems to be to maximize gains for as long as such conditions apply.

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