PLAY: EBAY - $35.05 ** Dropped **EBAY took it hard that Meg Whitman interviewed for the Disney job. The market followed that up with a solid punch with the index re-weighting and strong selling to remove -16% insider holdings from EBAY.
EBAY has substantial support at $32.50 but I am not sure I want to hold based on the news that Whitman would consider leaving.
Currently we are up +3.75 on the insurance put and down -2.85 on the 2006 LEAP and -3.80 on the 2007 LEAP. The prudent thing to do would be to bail for a breakeven and find another candidate. I believe the sentiment changed with the Whitman interview.
I am taking the exit for a breakeven. Aggressive traders may want to exit the LEAPS and keep the call until EBAY stops falling.
2006 $45 LEAP Call YRL-AI @ $5.00, exit 2.15, -2.85
Entry $42.24 (02/28)
PLAY: $77.13 Toll Brothers ** Dropped **Toll broke support at $80 and with the index selling. The prospect of the Fed raising rates and dropping the measured pace language is too much risk to remain in Toll without an insurance put. Our March put expired $3 in the money but the April put is too expensive for my taste.
We have the Fed on Tuesday and New Home Sales on Thursday. It could be the one-two punch that tanks the builders or the two stage rocket that send them to the moon.
The combination of the two is just enough to take me out of the trade. I am going to exit for a -2.15 loss and take my lumps.
Toll Brothers overview: Source - company press release.
Toll Brothers, Inc. is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. The Company serves move-up, empty-nester, active-adult and second-home home buyers and operates in 21 states.
Toll Brothers builds luxury single-family detached and attached home communities, master planned luxury residential resort-style golf communities and urban low-, mid- and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management, home security, landscape, cable T.V. and broadband Internet delivery subsidiaries. The Company also operates its own lumber distribution, and house component assembly and manufacturing operations.
Entry $84.10 (02/20)
PLAY: $64.43 Ryland Group ** Dropped **Ryland can't seem to recover from its weather related profit warning two weeks ago. I am dropping it for the same reasons I dropped TOL. Fed meeting and New Home Sales and no reasonable insurance put.
Ryland is one of the countries largest homebuilders and was recently added to the S&P-500. Ryland currently builds in 27 markets across the country and also acts as a mortgage lender. Net income has increased +400% over the last four years and estimates are continuing to increase but RYL trades at a PE of only 10. Ryland sold 16,880 homes in 2004, which was an increase of 1,683 over the prior year.
They recently announced 13 new planned communities around Las Vegas, currently the fastest growing market in the U.S.
Entry $65.00 (02/11)
PLAY: PCAR - Paccar Inc $73.39 ** Stopped $73.00 **PCAR finally stopped us out with a dip under the 50-day average to $73. The rebound two weeks ago put us back in profitable territory so the stop was for a breakeven.
Paccar had risen from $52 last January to $81 at the close of 2004. Like all the other winners they were hit hard by profit taking and knocked back to $68.50 on Jan-28th. After two weeks of sideways consolidation they have started to move higher once again. This is a stable company with very strong earnings and growth and should be a target of fund managers once the techs move into overbought territory. $70 appears to be holding as support and hopefully a launching point.
Stop loss $73.00
Entry point $71.80 (02/07)
PLAY: ADSK - Autodesk Inc $29.64 ** Stop loss $27.50 **Autodesk is stuck in an increasingly narrow range with a minor bias to the sell side. Our stop is -2.00 from the current price and I am willing to hold as long as support at $28.50 holds.
Autodesk is the worlds biggest software design maker and the stock has made quite a few investors a lot of money. In 2004 the stock rose from $12 to $39 for a +209% gain. Needless to say the company was hammered once the calendar expired and it dropped to a low of $26 on profit taking. On January 24th, the low for the current market and after a 33% January drop the company was downgraded on valuation my Banc of America. BAC was late to the party but ADSK saw another -12% drop on the news. Smith Barney retaliated that the concerns over share price had already been factored in with the January selling and suggested there was upside potential.
In November ADSK raised guidance for 2006 above analysts estimates and nothing has change from the company. A string of positive press releases continue to paint a picture of business is booming. Earnings are Feb-22nd so we do have event risk but I would like to think the risk is to the upside. The 100-day average has proved to be support in January as is did last August.
Autodesk does not have leaps. Since the normal time in a leap trade is only about two-three months I decided to enter the play with the July $32.50 call instead at $3.20. It is cheaper than a leap and plenty of time to play. The July $30 call is only $4.40 and it is already $1.33 in the money.
I am not going to recommend an insurance put because of the cheap calls. The closest strike at $30 makes the March put $1.60. I can't see paying $1.60 to insure a $3.20 position.
July $30.00 Call ADQ-GF @ $4.40
No insurance put
Stop loss $27.50
Entry point $31.33 (02/07)
PLAY: DGX - Quest Diagnostic $100.26 ** Stop loss $98.00 **Huge drop to near $98 on Wednesday but a fast recovery back to a new high over $101. If we get some sector rotation out of oil as the quarter ends we could see a strong breakout in DGX.
Quest announced a +21% increase in earnings in January and soared from $89.50 to just over $96 in a week. Instead of consolidating those gains it just keeps moving higher. We entered DGX on Jan-21st as it was moving lower and touched support at the 100-day average at $90. Three days later the rocket ride began from $89. The trick now is to stay far enough away from the price to keep from getting stopped but not give back all of our gains.
Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable healthcare professionals to make decisions that improve health. The company offers the broadest access to diagnostic testing services through its national network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff.
Quest Diagnostics is also the leading provider of esoteric testing, including gene-based medical testing, and provides advanced information technology solutions to improve patient care. (Source DGX)
2006 $95 LEAP Call YFK-AS @ $6.40
Entry $91.00 (01/21)
PLAY: ADBE - Adobe Systems $68.05 ** Stop $65.00 **Our March put expired worthless but we are not complaining after the +$5 jump on Friday. We no longer have any insurance so I raised the stop to $65. ADBE approved a 2:1 split and said revenue jumped +23.5% for the first quarter. I am hesitant to keep the play with nearly $5 at risk but a rebounding Nasdaq next week could continue this spike on the split news. If I start getting nervous I will send out an alert to exit.
Adobe is the king of the document and image business and continues to announce new products. The company announced earnings in December that rose +33% and beat estimates. Income for the year rose +69% on a +29% increase in revenue. Adobe affirmed guidance for 2005 and the stock has been beating the Nasdaq in percentage gains. In 2004 the stock rose +60%. Since they have already announced earnings we have very little event risk over the next month.
I recommended the February $55 put as insurance at 80 cents. That gave us six weeks for the Q1 earnings to cycle and for ADBE to pick a direction. If we are not profitable by Feb-18th expiration we will close and take our lumps.
Jan-06 $60 LEAP Call WAE-AL @ $7.50
Added new insurance on Feb-22nd
Stop loss $65.00
Entry $58.78 (01/09)
PLAY: SYMC $20.63 Symantec - Veritas ** no stop **SYMC finally dipped to support at $20 and our insurance put is $3 in the money. It is put up or shut up time for SYMC and we have about two weeks before our put is at risk. If we don't get a decent bounce I may exit soon rather than wait for April expiration. We have very little risk from here but we are down a couple bucks overall. I was hoping a touch of $20 would generate some buying interest.
I believe that the SYMC/VRTS merger is a match made in heaven and analysts will come to that view as more plans are announced. The companies have no overlapping products but all their products are perfect fits for the others. With one company having anti-virus, data security, backup, recovery and storage management it puts the other stand-alone companies in a very difficult position. EMC and QLGC both fell in the storage sector and Mcafee was crushed in the anti-virus sector.
There is no stop on this position. With the 2007 LEAP Call any minor dips will not result in a material drop in the leap. The April $22.50 insurance put will protect us from any potential disaster. For me this is a buy and forget play until April.
2007 $25 LEAP Call OBL-AE @ $6.30
Entry $25.37 (12/19)
PLAY: XLE - S&P Energy SPDR $43.76 ** Stop loss $43.00 **** Profit target $45 on any bounce **
Very little excitement despite the new highs in oil. I raised the stop to take us out on any end of quarter drop in price. Q2 is the weakest quarter for oil demand and I believe the relative weakness in the XLE is telegraphing an exit for investors.
We are up +$6 on the 2006 LEAP and I don't want to give it back.
The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year.
Entry $35.55 on 12/12