On Wednesday, I sent you an alert to buy puts on Vail Resorts. As part of our normal routine, we set a good ‘til canceled order to take profits at 100% of our limit price, $6.20.
This morning, those orders were filled as Vail’s downtrend played out as we expected.
In fact, since Wednesday, the option is already up 213%, based on our official entry price. Depending on what price your options were filled at, you’re looking at a gain of 100% at minimum.
However, I need to clarify/apologize for one oversight. Usually, I specifically ask you to place an order to sell half of your position at the 100% mark. In Wednesday’s alert, I forgot to type the word “half.” So if you followed my explicit instructions you probably sold your whole position. That’s OK. We’re still getting a 100%-plus gain!
However, I’m also aware that many of you still followed our “sell half” rule, which is the way we usually operate. So even though it will no longer be in the track record, I’ll continue to follow this trade as if we still have half the position open, and I’ll send you updates on how to manage it.
With that in mind, we are going to let the second half run for a bit longer. I will let you know when any action is needed.
Now, before I leave you for the week, I have some adjustments I want you to make to one trade, along with a couple more portfolio updates…
New Strategy for Carnival
Carnival (NYSE: CCL) posted results this morning that topped analysts’ expectations thanks to lower fuel costs. The results have sent shares up 4% so far today, and could propel the stock higher in the coming weeks.
As you know, we sold half of this position for a 51% gain a few weeks ago. Now our remaining calls are up 74%.
What I want to do today is cancel our standing limit order to sell the rest of our position at $5, and place a stop-loss order to protect at least a 25% return. In doing so, we’re allowing Carnival further room to run past that $5 limit price, while preserving at least a 25% gain in the event the shares drift lower. As our calls climb, I may adjust that stop-loss higher.
I’m doing this because this is a January option, so we have just about a month left on the contract. If the shares push higher, I want us to capture a gain larger than 100%. But if they slip, well, we will still have a 25% gain on the second half of our trade, giving us a cumulative gain of 38% on the entire trade.
For now, here are the actions to take:
Action to take: Cancel the Good ‘Til Canceled limit order to sell to close the CCL January 2016 $49 call option (CCL160115C00049000) at $5.
Action to take: Set a stop-loss order on the CCL January 2016 $49 call option (CCL160115C00049000) at $3.15. At last glance, it was trading at $4.35. Keep this order open until we change it or it’s filled.
I know it’s challenging sometimes to be patient with a trade like Polaris Industries (NYSE: PII), which seems to be going in the opposite direction right off the bat. But quick trades like Vail Resorts more than make up for those occasional lengthier ones — and I still believe Polaris will turn around and hand us a decent profit. It will just take longer than a two-day trade like Vail.
As for National Beverage (NYSE: FIZZ), our puts are holding steady above our limit entry price of $4.90. As I mentioned last week, those options moved quickly, so I know many of you were unable to get in under our limit price. Several subscribers have written in wondering what to do with their open orders. For now, sit tight. I don’t want us chasing prices because then we end up overpaying for the seasonal trend, which might result in an unnecessary loss — even if the trend goes in the right direction.
So stay patient and keep your limit orders open until they are filled, or until we close the trade.
Until next time, good trading…
Editor, Precision Profits