Last week, we bought calls on Cabela’s. Soon after, the stock moved quickly, sending our options up 73% in only a day. Since this was an unusually fast play, I received some questions about the trade that I want to address today.
However, before we get into that I want us to lock in some nice gains in three current positions: Tyson Foods (NYSE: TSN), Vail Resorts (NYSE: MTN) and Carnival (NYSE: CCL).
First off, we’re locking in a 75% gain on Tyson Foods, the U.S.’s leading meat processor, in about five months.
We originally made this trade to capitalize on the summer and fall grilling season. Over the past four years, Tyson’s shares have climbed during the summertime and into December — and this year is no different. This morning, the company reported strong results and increased its guidance. As a result, our options jumped. This is a perfect example of why we sometimes hang on to a trade when it’s down. Tyson’s stock was down about 6% in August, but then the company’s strong uptrend kicked in — and now our position is up 81%.
So, today we’re going to insure some of our gains. Although we usually only lock in profits on triple-digit winners, in this case, we’re closing half for 75% since our calls are short-dated, meaning they expire in just two months (January).
Keep in mind that we’re only setting a limit order on half the position. So we still have room to watch the seasonal trend play out, handing us even greater gains down the line.
Action to take: Set a Good ‘Til Canceled limit order to sell to close half the TSN January 2016 $42 call option (TSN160115C00042000) at $5.95. At last glance, it was trading at $6.25. Keep this order opened until it is filled.
There are also two other options expiring in January that happen to be up at least 50%: Vail Resorts and Carnival. I want us to go ahead and lock in profits on half of those positions as well.
Action to take: Set a Good ‘Til Canceled limit order to sell to close half the MTN January 2016 $110 call option (MTN160115C00110000) at $9.20. At last glance, it was trading at $9.65. Keep this order opened until it is filled.
Action to take: Set a Good ‘Til Canceled limit order to sell to close half the CCL January 2016 $49 call option (CCL160115C00049000) at $3.75. At last glance, it was trading at $3.75. Keep this order opened until it is filled.
Both of those trades will lock in about a 50% gain for us. Remember not to pay more than the limit prices I detailed above.
For Carnival, you may notice we already have a limit order open to sell to close half the position at $5, a 100% gain. Keep this order open so that we can still collect a triple-digit return on half our calls. Remember, these limit orders help you lock in profits in the event the stock moves faster than my alert can get to you. So it always helps to keep these orders open.
In fact, we have a handful of other open orders in our portfolio that haven’t executed yet, and that’s perfectly fine. Most of those are also just to ensure a triple-digit gain in the event of a quick jump, while the others are stop-loss orders. All of them help us preserve capital, so if you’ve placed one of those orders, continue to hold them for the moment. I’ll be sure to alert you if anything changes.
Now, for my update on our last trade…
A Note on Cabela’s
On Thursday, I sent you a trade alert to buy call options on Cabela’s. Since then, I’ve received several emails from subscribers who were unable to get their orders filled because the options moved too quickly.
I want to let you know that it’s perfectly fine to not get your order filled automatically. That’s why we use limit orders to begin with. In this case, if your order was not filled, go ahead and cancel it. I’ll have another opportunity for you soon, so there are more big gains to come.
Keep in mind, though, that this Cabela’s trade was a unique situation.
In last week’s alert, I mentioned that the company was possibly fielding interest from Bass Pro Shops — I just didn’t expect that rumor to be confirmed the next day. That means there were some people who seemed to know what was coming, or were speculating on it arriving. Thus, the stock was already moving on Thursday, making it difficult for everyone to get into the trade.
While this doesn’t typically happen, it’s still a good example of what can take place in an options market, and it’s why we use limit orders.
For example, if you happened to enter a “market order” (an order that executes immediately) to buy the Cabela’s call after the market closed, you could’ve been filled Friday morning at a significantly higher price, reducing your chances of walking away with a profit. Our limit orders are there to protect us from overpaying, and in this case that’s exactly what they did.
And as I mentioned, options don’t usually jump the day after my alert. They usually trade near my limit price for several days, so don’t feel like it’s going to be like this every time.
Well, that’s all for now. Today’s alert will be the weekly dispatch, since this Thursday falls on Thanksgiving. But keep an eye out next week — I already have a new trade on my radar. In the meantime, I hope you enjoy a happy turkey day with your friends and family.
Until next time, good trading…
Editor, Precision Profits