Trade Alert: Take Gains on Endo and Place Stop on Mattel

This morning, shares of Endo International whipsawed, triggering our protective stops on the second half of our calls — which is perfectly fine.

In total, we locked in a 41.5% gain in just four trading days!

That’s an incredible gain in a short time, and one I’d be happy to walk away with in every trade.

To briefly recap, we entered the position on Tuesday, and two days later, we locked in 52% on the first half. We then placed a stop to preserve the rest of our gains. And today we exited the position at $1.25 since the option opened there — gapping below our official stop-loss order. Keep in mind that many of you got out at higher prices, though.

Officially, this resulted in a 31% gain — giving us our overall 41.5% profit in just four days.

If your orders to exit the second half haven’t been filled yet, go ahead and exit this position at the market since I will no longer be following it.

Turning to the rest of the portfolio … our only open put option is on Mattel (Nasdaq: MAT), the May $23 put option. We are currently down about 40%, and we are at the end of our historical drift pattern.

This trade didn’t work out for us, and it’s unfortunate. The downtrend after Mattel’s weak earnings usually continues for another month, but we didn’t see that this time.

Since its earnings, Mattel’s stock is up just 2.8%. That means the stock hasn’t rallied much either, but the lack of downward pressure has failed to fuel our put options.

Losses are never fun, but they’re a part of every trading system. As long as our winners continue to be more frequent and larger, they will easily offset our occasional loss, though. And that is what we’ve seen throughout this beta test.

That said, I want us to place a stop-loss order to preserve capital, and let’s see if we can get a decline in the stock in the next week. In this case, we’re going to place the stop at 50%, preserving more capital than our usual 75% stop. The option is set to expire next Friday, so I’d rather keep more of our cash protected than risk more of it while hoping for a quick turnaround.

Based on our official entry price of $1.52, I’ll place our official stop at $0.81. Be sure to place yours at whatever preserves 50% of your capital. Before placing this, you will need to cancel your standing limit orders to sell half the position for a 50% gain.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Mattel Inc. (MAT)
Option Type: Put Option
Expiration: May-19-2017
Strike Price: $23
Option Symbol: MAT170519P00023000
Action: Sell to Close
Order Type: Stop-Loss
Duration: GTC (Good ‘Til Canceled)
Limit Price: Whatever nets you a 50% loss.
Trade Deadline: Keep this order open until it is filled or canceled.

As for the rest of our positions, we are in good shape.

The Nvidia (Nasdaq: NVDA) July $115 call option is up around 100%, and we’ll look to increase our protective stop soon to lock in even higher gains. Our Edward Lifesciences (NYSE: EW) and Western Digital (Nasdaq: WDC) call options are also up slightly.

The only down position for the moment is Caterpillar (NYSE: CAT). We own the July $105 call option, and it is currently down 46%.

The good news is that we still have plenty of time to see Caterpillar’s drift kick in. Based on the historical research, we know that its drift usually plays out two months after earnings. We entered this position on April 25, so we can expect this drift to kick in prior to the end of June.

I’ll continue to keep a close eye on all of our positions, and I’ll alert you when it’s time to take action.

We have three companies set to report earnings next week, five the following week and a final one at the end of May. I’ll send you an alert as soon as our next trade is triggered.

Before I sign off for the week, I just want to give a big thank-you to everyone who participated in yesterday’s survey. I’ve seen some great feedback and insights, and I appreciate the time you all took to check in.


Chad Shoop, CMT
Editor, Earnings Drift Alert