The week has started off going the wrong direction, as Mondays slight loss was followed by a decent sell-off on Tuesday. Better then expected trade deficit numbers had folks thinking taper again, and that had Gold selling off along with equities. At some point we will rally, maybe today is our day? We did lose $170 on the SPY, so will need to regain that key area. Earnings by RL were decent on the revenue end but outlook looked a little weak and share are getting punished pe-market- Z and FSLR reported after hours yesterday, but are down pre-market as well.

FOSL had it’s price target raised but rating downgraded, which doesn’t matter to me. We have GMCR & TSLA earnings after the close, then RAX and PCLN Thursday. Once again folks, I will be very limited over the next few days, then extremely limited over he following two weeks. UPB will be handling most of the watchlist, and you shouldn’t see anything different besides my absence in the chatroom and on the Week Ahead Webinar.

 

 

Here are two post from the blog from last night:

 

https://www.optionmillionaires.com/2013/optionmillionaires-private-twitter-access/

 

https://www.optionmillionaires.com/2013/ditto-trade-is-coming-sept-3rd/

 

And a nice article on TSLA by Chris D : https://www.optionmillionaires.com/2013/tesla-sentiment-check-public-too-optimistic-on-earnings/

 

Here are some of the analyst changes for today:

 

 

MGM MGM Resorts Cotai project should expand multiple, says Susquehanna

Susquehanna believes an appreciation of MGM's Coatai project will lead to multiple expansion and drive shares higher. The firm also sees a strong 2014 convention calendar. Shares are Positive rated and price target raised to $20 from $18 :t

 

PCLN priceline.com International bookings remain strong, says Morgan Stanley

Morgan Stanley believes priceline.com's international bookings remain strong and that it can beat the high end of its international bookings guidance of up 40% year-over-year. The firm's Q2 operating income estimate is $945

 

FB Facebook price target raised to $45 from $37 at Morgan Stanley

Morgan Stanley believes Facebook's expected launch of video ad units will boost total revenue and earnings by 10-15% within 1-2 years. Shares are Overweight rated

 

YUM Yum! Brands upgraded at BofA/Merrill

As previously reported, BofA/Merrill upgraded Yum! Brands (YUM) to Neutral from Underperform. The firm upgraded shares based on valuation and increased its price target to $79 from $60 based on shift to 2014 estimates

 

FSLR First Solar earnings miss due to timing issue, says Citigroup

Citigroup attributes First Solar's Q2 earnings miss to a timing issue and believes the company's fundamentals remain intact. Citi thinks First Solar's deal with GE will enhance its ability to secure projects in emerging solar markets and keeps a Buy rating on the stock with a $50 price target

 

Z Zillow price targtet raised to $105 from $75 at Benchmark Co.

Benchmark Co. raised its price target for Zillow citing the company's accelerating traffic growth in Q2 and a clearer path to monetization. The firm keeps a Buy rating on the stock

 

SAM Boston Beer price target raised to $222 from $200 at Citigroup

Citigroup raised its price target for Boston Beer citing continued craft growth after the company's analyst meeting. However, Citi keeps a Neutral rating on shares, saying the valuation looks stretched at current levels

Z Zillow downgraded to Sector Perform from Outperform at RBC Capital

 

Z Zillow weakness creates buying opportunity, says JMP Securities

JMP Securities believes that Zillow continues to gain market share and is in the early innings of its growth. The firm reiterates an Outperform rating on the stock

 

 

Will be keeping it small once again. Only sold TSLA calls and bought more FOSL $135s yesterday. Will look to play a Z bounce as well as try for GMCR flip for earnings after hours.

 

 

Stock Ticker	Call/Put	Strike	Expiration	Closing Price	Entry Price
Z	CALL	$100.00	Aug	3.50	0.40
GMCR	CALL	$100.00	weekly	0.45	0.40

 

 

Also folks, received quite a few private twitter requests this morning. It will take some time to verify and approve them all but should be complete before the morning is over.

 

Lets have a great day!

 

- JB

After the closing bell on Thursday, Tesla (TSLA) is scheduled to announce their second quarter earnings. Estimates thus far are expecting around a 16 cent per share loss for the quarter and revenue of $402.11.

While the question that may be on the investing community’s mind may currently be, “will they beat or miss earnings?” we should also consider how public sentiment is around the stock. If the public is overwhelmingly optimistic about earnings, then even an earnings beat may fail to exceed the public’s expectations, which would drive prices down, despite the positive news. Conversely, if the public is expecting an awful quarter, and Tesla releases a modestly negative earnings report, investors may bid up the price of the stock anyway as the miss was less than expected.

So let’s take a look at how the public is feeling about (TSLA).

Sentiment Polls

Sentiment polls are conducted on individual stocks on various sites on the web. One of the polls is conducted on the social media site, StockTwits.com. Here, the percentage of bulls and bears on an individual stock is calculated as a seven day moving average of the votes among the StockTwits community.

At this point, the StockTwits community, representing mainly active retail investors/traders and some industry professionals, is bullish on Tesla in the near term, with only 17% of the community bearish on the stock. And, after some rough calculations, about 400 votes are cast a day. So, if the current sentiment numbers represent a seven day rolling average, then about 2800 votes have been counted in this poll. With enough participants to suggest these sentiment numbers are not skewed, we can conclude so far that the community is expecting a positive earnings surprise.

 

Gauging Sentiment With Short Interest – The Potential For Another Squeeze?

The reaction to Tesla’s earnings release on May 8^th was largely as a result of a short squeeze. On April 30^th, the last time short interest was recorded before the May 8^th earnings release, TSLA’s short interest was 27,501,901, and with 7.96 days to cover. As new buyers piled into the stock thereafter, shorts squeezed the price even higher as they attempted to cover their positions. In just two weeks, short interest declined by 4.5 million shares, sending the days to cover down to 1.56. Could this happen again? Take a look at the chart below.

While anything is possible, a major short squeeze looks much less likely this time, as NASDAQ OMX’s last release of short interest figures puts Tesla’s short interest at roughly 10 million shares less than it was at the last earnings release and the days to cover down to 2.13. This weighs negatively on the reaction to any report tomorrow, as the stock has become more liquid and there are fewer short sellers to be squeezed out of their positions, should the reaction to earnings be positive.

 

Bets Placed With Options

Another simple way I have found to judge speculator sentiment on a stock’s earnings is to watch the option chain for the stock. First, calculate the open interest ratio on the closest, non-weekly options for the past five days using at least 8 strike prices for each day. The ratio is calculated as:

Open Interest Ratio = Put Open Interest/Call Open Interest

If the ratio is significantly falling up until earnings date, then many more investors are placing bets with call options than with puts. This should be viewed as excessive bullishness, which would suggest that earnings may fail to lure even more investors into buying the stock, as expectations will likely be very high. Let us see if this is the case for Tesla.

Here are the open interest ratios for (TSLA) since last Wednesday.

So what we see is a modest uptick in bullishness. Most significant is that put open interest has shrunk while call open interest has remained relatively stable. This indicates that either bears are not willing to bet bearishly on TSLA through the earnings release or current holders of TSLA stock are comfortable holding their stock without protection. Meanwhile, call option holders are content with their bullish positions This again suggests that the community is more positive than negative on Tesla’s earnings release.

Given the weight of evidence, objective sentiment analysis says that the public as a whole is expecting a positive earnings surprise from Tesla. While this does not doom Tesla’s stock to decline regardless of the results, it does indicate that any earnings beat will have to be by a wider margin to exceed the public’s already positive expectations. Finally, as a TSLA stockholder and loyal product follower, this says to me that, after riding its solid run higher, it may be time to take some stock off the table to reduce my risk and be ready to buy again when the mass optimism subsides.

 

 

The week started off in the red as the market failed to find its footing. Despite the slight pressure, there were some nice movers during the day as some of the momentum stocks continued to take flight. TSLA and PCLN soared to new all time highs, while AAPL finished green again and NFLX finally broke over 250. FOSL beat earnings and raised it’s guidance, all good signs for a stock that has been beaten up since it hit $140 a year ago. The numbers maybe enough to push it over $130 short term and the $135 calls we bought yesterday should be looking nice. After hours we have FSLR. I am not playing it but if you know me then you know I dont like the Solar sector so $40 puts would be my play. Will also look to play GMCR for some premium build before earnings tomorrow ah’s. I think GMCR is priced too perfect and would worry about a slight beat not being good enough to add a bid to the stock.

 

Not many analyst upgrade/downgrades of note, here are the ones that stood out:

 

 

AEO American Eagle weakness may create attractive entry point, says Wedbush

Wedbush believes that the pullback in American Eagle following the company's negative preannouncement could create an attractive entry point for long-term investors. The firm thinks the stock's valuation is compelling, and believes that the company could be acquired for about $27 per share. Wedbush lowered its price target on the stock to $20 from $25 but keeps an Outperform rating on the shares

 

 

FCX Freeport McMoRan discount to peers looks overdone, says Morgan Stanley

Morgan Stanley believes Freeport McMoRan's share discount to peers is excessive and that shares will move higher driven by labor contract renewal, the full ramp-up at Grasberg, and a rebound in commodity prices and volumes. Shares are Overweight rated with a $43 price target

 

 

JCP J.C. Penney cash burn continues, says Morgan Stanley

Morgan Stanley said J.C. Penney pre-released Q2 cash balance of $1.5B is below its estimate of $1.9B. The firm lowered operating income estimates based on store checks that indicate same store sales are down 10% vs. previous expectations for down 8% and that promotional pricing is pressuring gross margins. The firm rates shares an Underweight with a $9 price target

 

 

PCLN Priceline.com price target raised to $1,050 from $975 at Ascendiant

Ascendiant raised its price target for priceline.com ahead of the company's Q2 results and maintains a Buy rating on the stock. The firm expects upside in Q2 and positive guidance

 

 

Here are the strikes I am looking at for the open:

 

 

Stock Ticker	Call/Put	Strike	Expiration	Closing Price	Entry Price
RL	CALL	$210.00	Aug	0.35	0.25
GMCR	CALL	$100.00	weekly	0.45	0.40

 

 

RAX was out as a trade via text yesterday and like it to near $49 or so before earnings. Love NFLX on the breakout yesterday and should have enough steam for $265+. Also have TSLA Aug 17th $200 calls and will probably lock some in today as they are already up 100%.

 

That is all for now. I will do the watchlist tomorrow then that will be all for me for a few weeks. UPB will continue to run the show and after a while you will forget about me!

 

I did a week ahead webinar last night which is being uploaded as we speak : https://vimeo.com/71813471

 

 

Lets have a great day!

 

- JB

 

New all-time highs, huge earnings runs, and some big percentage moves... what more can an option trader ask for. Well we can ask for a duplicate this week as earnings season continues with some more fun ones reporting. I will be looking at Fossil today for a play into earnings for tomorrow. Not sure which others I will be looking at, but will have a week ahead webinar tonight at 10:30 pm for those interested, as I was not able to do the Webinar last night. Below is the link:

Registration URL: https://attendee.gotowebinar.com/register/8321371532515087872
Webinar ID: 155-741-059

 

 

Again, for those that do not know, I will be getting married this week and will be gone for most of August. I will be stopping in at times, but just want to make sure you are aware.

 

Chris D will be having a Webinar for Diamond Members on Thurs, check it out here: https://www.optionmillionaires.com/2013/webinar-the-secret-to-getting-an-edge-with-options/

 

AAPL looks like its going to keep moving on up like UPB mentioned, and seems to be a nice call play. Another upgrade today for PCLN over $1000, but with earnings this week, the premiums are very expensive to play. A slightly negative article on NFLX in Barrons over the weekend(on the front cover) has the stock down pre-market and will probably come under pressure right at the open. Will wait for the dust to settle a bit then look for my customary call options. That strategy did not work at all last week, so do not expect a different result this week.

 

Tons of analyst changes today, here are a few that caught my eye:

 

 

TSLA Tesla adjusted pricing, options on Model S, says Jefferies

Jefferies says Tesla late Friday adjusted the pricing and options on the Model S. The firm believes the adjustments should help distinguish between more and less price-sensitive buyers and improve margins. Jefferies says one of the adjustments includes the HD backup camera and Xenon headlights becoming standard on all vehicles as opposed to being part of a $3,750 Tech Package. The firm has a Buy rating on Tesla shares

 

FOSL Fossil momentum should slow in second half, says Brean Capital at Brean Capital

Brean Capital reiterated its Sell rating on Fossil as they believe it will be increasingly more difficult for the company to achieve expectations due to global weakness in the timepiece business and a ramp up of higher margin stores as the year progresses. Price target is $85

 

theflyonthewall.com: CSCO Cisco momentum continues, says RW Baird at RW Baird Baird believes Cisco's strong momentum continues during July citing its execution, normal pricing patterns, and lack of serious competition. the firm continues to call Cisco its Best Large Cap Idea for 2013. Shares are Outperform rated and price target raised to $30 from $28

 

NFLX Netflix accounting change would be immaterial to value, says Lazard Capital

Lazard Capital says Netflix in its quarterly filing noted the potential to change its accounting for originals by accelerating amortization. The firm estimates such a change would reduce its 2013 earnings estimate by 67c and 2014 estimate by 79c, but sees no impact to Netflix's enterprise value since earnings would lift by a like amount in later periods. Lazard Capital recommends using any weakness in Netflix shares around the potential accounting change as a buying opportunity and keeps a Buy rating on the stock

 

PCLN priceline.com price target raised to $1,040 from $830 at JPMorgan

JPMorgan expects priceline.com to report strong Q2 results on August 8 and raised its price target for shares to $1,040 after factoring in the Kayak acquisition into its estimates. The firm reiterates an Overweight rating on the stock

 

GME GameStop price target raised to $59 from $48 at Piper Jaffray

Piper Jaffray believes GameStop is well positioned to benefit from new hardware and software sales following the launch of Xbox 360 and PS3. The firm upped its price target for shares and keeps an Overweight rating on the stock

 

FB Facebook price target raised to $46 from $38 at Piper Jaffray

Piper Jaffray raised its price target for Facebook to $46 citing the potential of the company's reported video ad offering. Piper said it has greater comfort in its forward ad growth estimates following Bloomberg's report that Facebook would begin offering 15 second video ads this year. The firm has an Overweight rating on the stock

 

 

With FOSL reporting tomorrow before the open, and the analyst downgrade today, will hope the small pullback allows an opportunity to nibble some lotto calls for earnings. WIll also try and grab some RAX lotto calls for premium build into earnings on the 8th.

 

Stock Ticker	Call/Put	Strike	Expiration	Closing Price	Entry Price
FOSL	CALL	$135.00	Weekly	0.40	0.30
RAX	CALL	$55.00	AUG	0.40	0.35

 

 

Lets have a great start to the week. Hope to see some of you later tonight for the delayed Week Ahead Webinar!

 

Happy Trading!

 

- JB