Friday, January 26, 2007

GOOG Q4 Earnings Game

Since playing GOOG around earnings time can be equated to playing the roulette table at a casino, I thought it might be fitting to show you what theflyonthewallblog has found lately.

Henry Blodget, yes that Merrill Lynch internet analyst who used to hype up the internet fliers during the late 90's IPO bubble and who was barred from working in the securities industry ever since, has been asking for reader's Q4 earnings estimates on GOOG.

Here's his game:

Please submit your estimates of:
1) Google's Q4 NET REVENUE (excluding affiliate payouts), EPS estimate,
2) The price at which Google's stock will open the morning after the earnings announcement, and
3) BONUS: Your logic about both of the above. The more detail the better.

Please submit your bets to the comments section of this post by the market-close on Tuesday, January 30th. As usual, the winner will get his/her name (real or alias) in lights in a follow-up post--and will also presumably cash in on an overnight stock trade (although that part is up to you).

Note that the sweepstakes tests your ability to not only project fundamental performance, but to have a good enough handle on the market consensus that you can anticipate how the market will react to it.

For reference, below is the Street's printed revenue consensus, which is almost certainly low-balled. If Google hits this number, the stock will almost certainly tank. So the questions are, how much does the market think Google will beat this number by, and how much will it really beat it by? And what will happen to the stock in the morning?

I regret that we can't use EPS for this game, but the random ways that analysts choose to calculate Google's EPS make the number nearly meaningless. We could use operating margin, but then we'd still be arguing about whether stock-comp should be included (it should), and so on. And who has time for that...

So submit those revenue bets and let the sweepstakes begin!
Street consensus Google Q4 NET REVENUE estimate (per Yahoo Finance): $2.19 Billion (Yahoo Finance 2.05B-2.31B Low/High), with a range of $2.05 to $2.31 (Yahoo Finance avg estimate is 2.90 with 2.65-3.11 Low/High).

Here are the bets so far (in this order Rev, EPS, Open Price)
2.32B, 2.49, 512
2.30B, 3.00, 530
2.29B, 2.05, 438
2.50B, 3.10, 550

Alright "swingers", let's play this game as well except the closest will receive a gift certificate via email from OJ (you'll have to submit your email address when I post your comment name).

Here's my bet: 2.6B Rev, 3.15 EPS, 550 (I know you all think I'm crazy but it's anyone's game, right?)

Good Luck!!!

New OJ Poll Question

New question same volatile friend (not for the weak of heart or stomach); GOOG. You all know where I stand on this since the OJ Portfolio contains call options on GOOG. Heck, I may even buy some short term OTM Feb calls for a speculative play.

BTW, here's an earnings preview to chew on (Click HERE).

So get on out and vote on GOOG's upcoming earnings report.

OJ Poll Results

It looks like those of you who were YES voters on the YHOO and MSFT post earnings price increases were correct.

If that's any indication at all it could signal a mild bullish environment (very scientific poll you know).

Stay tuned for the next OJ Poll about our very volatile friend.

Thursday, January 25, 2007

MSFT Update

It appears that after hours traders liked MSFT's Q2 earnings with the stock up about $0.80 at 31.25 as of this post. The earnings came in at $0.26/share, a penny above the highest estimate of $0.25 and 3 cents above the consensus estimate of $0.25.

Revenue came in at 12.5B coming in above 12.1 consensus estimates and the company guided slightly higher on their outlook with 45 to 46 cents on 13.7 to 14b in revenue for Q3. Analysts were already expecting 46 cents and 14b in revenue.

After today's shelling on the markets overall, I'm not too optimistic about a rally on this so-so, lackluster news but I could be wrong like I was with today's expected rally on EBAY's report after hours yesterday.

Oh well, it will be interesting how IV levels on our short put spread play do and how well the stock trades tomorrow as well.

Until then, goodnight and good luck as a famous news reporter used to say. At least I didn't say good night gracie.

MSFT Earnings Play

I thought that I might point out that MSFT's Feb ATM call/put IV levels of 27.50%-29% are at almost 52 week highs (see IV chart below).

So I'm thinking of playing this earnings after the close today by selling the FEB 32.50 Puts for about 1.80-1.85 and buying the FEB 30 Puts for .40-.45 for a net credit of 1.40-1.45 if possible.

That is still anticipating a bullish directional move which of course takes on its own risk. The reward to risk ratio is not great but it's not too bad with about 1.3-1.4/1. Again, I'm anticipating some premium decline as IV drops and the underlying to move higher after the anticipated earnings event.

If I wanted to hedge the directional play, I could also sell the FEB 30 Calls and buy the FEB 32.50 Calls for a net credit of 1.05-1.10 which would offset some of the short put spread premium increases. However, I'll stick with the one sided short put spread (aka bull put vertical spread).

The analyst consensus for MSFT's Q4 earnings is .23 with a low of .14 and a high of .25. The revenue estimate consensus is 12.07 B with a low of 11.72B and a high of 12.43B.

But what will be of course the most sought after information will be the forward revenue guidance based on estimated VISTA sales on the retail side after the Jan 31 product launch.

The next question also for all tech and market investors is will this outlook from MSFT's management provide the catalyst for the Nasdaq and the major indices to new highs again and more importantly, be a platform for a new uptrend level (technically speaking) or,

will it be a lackluster reaction much like today's reaction to EBAY and QCOM's earnings?

In my opinion that seems to be a lot of pressure for one company's performance to take on for the upside.

Warning: The following comments have no scientific, objective or empirical grounds other than a more of a sort of behavioral, subjective, and instinctual/sentimental perspective. In other words, just a few thoughts from the "gut".

But in a market environment where the bulls don't seem to be completely ready to take full profits and the bears are not quite sure whether to increase their short positions, I'd lean in favor of the bulls. It's a difficult task to pick both tops and bottoms; trust me, i've tried many times with few successes and more failures,

I think that given that the uptrend is still intact with the S&P and the DOW, the bears are a little more nervous than the bulls since selling lately has been met with heavy discount buying.

Alright, enough of my babbling. Let's hear some of your babble on this earnings play whether it might just be a non-event or a major event that many institutions are keeping a close eye on.

Wednesday, January 24, 2007

Did Everyone Forget About EBAY?

I did. Apparently not the bulls after hours today. The AP reported that EBAY blew away analysts estimates and have upped their guidance for Q1 2007. The stock's trading up around $33.15 currently (+3.15 from today's close of $30.00 +10.5%).

I guess that I should have mentioned EBAY's earnings along with MSFT's tomorrow. Oh well, continued positive reactions to these tech stalwarts only bodes well for bullish tech positions.

Perhaps we'll get some continuation in the Naz tomorrow.

Latest Poll

I have not seen any new voters at the OJ Poll lately. Is that because you "swingers" are a little gunshy or is it because you all have forgotten? Regardless, the odds might be in the YEA sayers favor.

OJ Portfolio Update

What a turnaround on the OJ Portfolio positions! Thanks to the positive reaction to YHOO's earnings news, it appears that the tech market is finding some buyers so far and so has the OJ Portfolio.

What remains to be seen is if the bulls sustain their buying to move the Naz back above prior highs of 2508.

That's a long way from current levels but one never knows. Again, MSFT's earnings will be reported tomorrow 1/25 and so the market will be anxious to see the results and more importantly the guidance going forward.

GOOG has certainly found some renewed buying interest after the shelling it's taken lately. It may only be the short sellers closing out positions with some nice profits as of late.

All the big name tech stocks such as MSFT, CSCO, HPQ, AAPL, and even DELL are seeing improvement so far today which has been driving the Nasdaq which is up 21 points today to 2452 so far.

The million dollar question as always is this a true rally to new highs or is this a dead cat bounce? We shall see.

PEIX Update

So much for continued bullishness in the ethanol stocks. According to MarketWatch, the expected news from the Prez was baked into the stock price.

PEIX is currently trading down $1.08 at 16.77. The 20/17.5 Put spread is currently trading for 2.00 putting the position down about 38%. The IV levels have actually moved higher from yesterday which is not for a net credit seller who wants premium degradation.

What's our exit strategy? I'll look for the stock to rebound a little today if it does at all and then might close out the 20 Put leg for a loss and hope that the stock continues to move lower.

This is a broken trade and should be treated as such at this point.

Any ideas on PEIX's sad move today, if so grab a vine.

Tuesday, January 23, 2007

Market Technicals Via Trader Mike

Click Here for TraderMike's readings of the index charts.

I agree that the Nasdaq especially is waiting for some kind of catalyst to push it down or up. It will be interesting to see if YHOO's bullishly accepted report after today's close might break the short term downtrend. Or, maybe MSFT will be the catalyst after this Thursday.

Grab a vine and give me your reaction to the market action.

Retraction On No YAHOO For YHOO

Alright. Not that things might not be different at tomorrow's open but apparently investors decided after further review that YHOO's report was acceptable and somewhat bullish.

The stock has reversed in after hours and is now trading at $28.10 up about a $1.10. BTW, GOOG is also up with the last trade at about 483 up $4.00 after hours currently.

Maybe there is hope yet for a YAHOO.


You guessed it. YHOO just reported its latest earnings report and the stock is trading down about a $1.00 after hours. Not good for tech in general, maybe alright for GOOG and other internet search competitors.

GOOG is up after hours by about a $1.50 as we write. I'd imagine that given this news on YHOO we'll probably see another down day for the Nasdaq tomorrow. Maybe MSFT will save the struggling tech market with its earnings report coming up 1/25.

GOOG's earnings will be released to the public 1/31.

Grab a vine and give me your prognostications if you dare.

PEIX Credit Spread Update

Just got filled on the FEB 20/17.50 Put Spread for a $1.45/contract net credit. The stock has moved up to $18.46 as was expected in anticipation of tonight's SOU address by the Prez.

IV on those puts is 64% respectively and the FEB 17.50 Calls are now trading for 1.70.

Stay tuned for more updates and check the OJ Portfolio for the latest position status.

Anyone Up For A Leg Of RACK?

That's right. I bought some JUN 20 Calls for 2.96 based on a nice rally in the tech market and the fact that RACK has been so beaten up.

Having said that, this is a longer term bullish call play and I'll be "legging" into the position as it proceeds. I'm certain that there will be profit taking today so I'm lightly in.

Anyone else like "lamb"? Grab a vine.

PEIX & ENER Plays?

Who else wants to jump on the ethanol bandwagon in light of the Prez's state of the union address where he's expected to call for a sharp escalation in the federal mandate on use of ethanol as a renewable fuel alternative (click here for Yahoo Finance article)?

Since both Adam at Daily Options Report and J. Kahn at In The Money have talked about PEIX and ENER respectively I thought that I might add my plays on these two as well.

PEIX's IV has really shot up in anticipation of the expected address from the Prez which makes it difficult to play a directional bullish call play. So here's what I have in mind to play the bullish side of the equation while also anticipating a drop in IV after the address.

I'm looking at selling the FEB 20 Puts and buying the FEB 17.50 Puts for a net credit of $1.50. The 20's IV is at 67% and the 17.50 IV is at 66% which are way almost at 52 wk high levels.

Conversely, the Feb 17.50 Calls are currently priced at about $1.35 with a .60 delta and the 20 Calls are at .45 with a .27 delta. I post this info so that in the next few days we can compare the movements for measuring purposes.

The PEIX vertical spread play's reward to risk ratio looks acceptable with about a 1.5:1 ratio.

The ENER FEB 35/30's produce a less appealing r/r of .5/2 at a net credit of 1.70. The reason for the lower reward to risk profile is due to the larger spread between the strikes on ENER.

Doing some quick what if scenario in the pricing calc for the PEIX spread we get the following potential results:

If PEIX's stock rises $1.00 and IV drops 3 % after tonight's address the $1.50 credit turns into
1.20 (+20%)
If PEIX's stock drops $1.00 and IV stays the same the $1.50 credit turns into $1.80 (-20%)

The most one would lose in this play would be $1.00/contract.

Stay tuned for more on the PEIX spread play and grab a vine to share your thoughts/questions/concerns about the ethanol play.

Monday, January 22, 2007

GOOG And Tech

Cramer keeps sounding the "sell tech" horn based on seasonality/cyclical reasons as well as for profit taking reasons (see today's video here). The latter makes more sense to me than the former. To his credit, we did see some selling in the Nasdaq at this time last year but not that looked like a valley. It seemed to be more profit taking from the January runup as evidenced in the chart below. Regardless of what I say I can't move markets with my comments as he can.

Speaking of tech, I added again to my GOOG Mar 490 Calls lowering my cost basis to 25.86. It will be very interesting to see if the stock can rebound significantly into earnings in 2 weeks or so. The bears and sellers have been definitely ruling the last few trading days for GOOG.

Maybe my next poll should ask, "when will the bleeding end" or "will GOOG close below 450 by week's end?" I'm rather confident most folks right now may be a YES voter on that poll question.

Can anyone help me justify my bullish stance at this point with GOOG's performance down over 31 points from its 513 all-time high since 1/16/07 (that's 5 trading days folks)?

I still maintain, however, that value buyers will step in soon and once the earnings expectations/hype kicks in we should see some rebounding. In fact, I think we might even see some short squeezing soon. Ever heard of the term, "shaking out the weak hands".

Hopefully, my hands don't get too weak.

Sunday, January 21, 2007

New Poll Question (See Poll On The Side)

Feel free to vote on the latest OJ Poll for this upcoming week 1/22-1/26/07.

I personally am bullish on both stocks but that's because I bought calls.

Earnings This Week

Here are the earnings reports of concern slated for this week:

1/23 YHOO
1/25 MSFT

This week's poll will be based on these two earnings report outcomes.

Be sure to vote.