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Portfolio Activity - INSP

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Shares of INSP tumbled after the close of trading Tuesday, despite the company's sharp rise in first-quarter profit. Infospace said its quarterly earnings jumped from $36 million to $93 million, mostly due to a large legal settlement. Excluding the award from the litigation, the company's profit nearly tripled to $16 million, or $0.45 per share. The consensus analyst's estimate was $0.37 per share before items, so the numbers easily outpaced expectations. However, we all know investors don't focus on the past but rather they ask "what will you do for me in the future?" and that's where INSP fell short. The company forecast a second-quarter profit of $0.36-0.39 per share on revenue of $83-85 million, while analysts were looking for second-quarter earnings of at least $0.42 per share on revenue of $91 million.

Now the stock price is well below the sold (put) strike in the bullish spread and since no stops will be triggered by the "gap-down" after hours, we will likely be forced to leg out of the position to salvage the remaining funds. The only consolation is we will be buying very little "premium" with the in-the-money puts and the extrinsic value in the long options will have increased substantially due to the sharp decline in the underlying issue. If the market is generally lower in the morning, it may be best to sell the long (put) options immediately and wait for a rebound to close the short position. Traders who believe the issue will eventually recover might also consider rolling the spread forward to a distant expiration month and down to lower strike options, as that is one method to limit losses in the position. We'll review all of the viable alternatives tomorrow morning and post some observations soon after the issue begins to trade in the open market.

MCM Staff

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