Google Earnings Play

Yesterday (1/20/11) I bought the Google 585/590 call spread for $4.40. Google was trading around $630 at the time. Based on recent news that Google had increased market share in the search maket, general positive news around recovery in the advertising market, and Google general ability to generate huge profits I predicted an earnings beat that would suppot the stock price. Google does tend to spend heavily on hiring and investment and has hurt the stock price on previous earnings announcements. After the close, Google announced solid earnings and the stock was up in after hours trading. I will be able to sell the spread today for $4.90-$4.95 for a nice quick gain.

Aaple

I bought the Apple Inc. (AAPL) 315/320 call spread today about a half hour before market close for $4.50. On Monday, Steve Jobs announced that he was taking a medical leave from the company and the stock was his in pre-market trading and opened lower by about 5%. Apple managed to regain most of the loss by market close and was set to announce earnings after the close. My thesis is that the reaction to Steve Jobs news was probably a bit over done as the company's earnings would not be in jeopardy for at least a couple years even if Jobs were to have to remove himself from the company. Also, I figured earnings would easily beat estimates based on iPhone and iPad sales. After the close, Apple announced earnings well ahead of expectations and was trading around $345. I should be able to sell the spread for $4.90-$4.95 for a 8.9% to 10% gain before options expire on Friday.

Waiting for a Downturn

The market has been up almost non stop since September. Given the lenght and size of the upward move it would not be surprising to see a pullback in the near future. Some technical indicators have turned negative, but I would not say it is a clear signal yet. One potential catalyst for a downturn would be more problems in Europe. The latest candidate is Portugal, though fears around Portugese debt seemed to have been eased today. Primarily responsible for the easing were comments by China and Japan that they would purchase debt to be issued by a newly created European bailout fund. Also, Alcoa kicked off the quarterly earnings reports last night and any surprise earnings numbers or conference call info could drive markets near term. As a hedge agains a possible downturn I bought a February SPY (S&P 500 ETF) $122 put @ $1.03.

Ruby Tuesday

ADP employment report was positive today, turning what looked like a down day into a positive one. No trades seem to be jumping out at me today like Mosaic did yesterday. Ruby Tuesday (RT) reports earnings tonight. I'm not putting on a trade since the stock is highly volatile and I don' t have any capital available now anyway. If anything I would bet on an earnings miss/stock decline after the announcement. Darden Restaurants (DRI) was down around 6% after their earnings a couple weeks ago and has continued to slide while the market rallied. Given rising food costs and a still nervous consumer I wouldn't expect much from RT.

Mosaic Earnings Play

Sold the Mosaic (MOS) 67.5/65.0 put spread for $0.23 just before the close last night (1/4/11). MOS was set to report earnings after the close. It seemed and earnings beat was definitely in the cards given all the upbeat news around the fertilizer industry and commodity space in recent moths. Given the earning beat and subsequent price rise I am confident the options will expire out of the money for a nice quick 10% gain (not counting commissions). I would close the position but I put such a small amount into it that the commissions make it more viable to just wait for expiration.

PROSHARES ULTRASHORT 20+ YEAR TREASURY

Bought the 33/36 TBT call spread today for $2.30. Bond mutual funds that own Treasury, mortgage, corporate and other taxable bonds last week saw their first net cash outflow in two years. Premise is that bond prices will continue their downward trend as people shift towards equities. TBT was trading around 37.70 at the time of the trade.

With lackluster volume in the last couple weeks of the year it is hard to determine if any new trend is really developing in the S&P 500. With not much in the way of market moving news, the market continued on its upward trend that began in September. Then next long term resistance levels are around the 1300 and 1400 levels achieved in 2008. Minor support currently exists at the 1180 level tested in November and at the 1130 peaks achieved in June and August. After that there is major support at the 1050 level.