-- Posted Wednesday, 1 February 2006 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Wednesday, February 1, 2005
For investors who’d rather be smart than lucky
No doubt, the eggheads who espouse the efficient-market theory would say Google shares were priced “just about right” when regular-session trading ended on Tuesday afternoon. That being the case, do we regard GOOG’s so-far 65-point drop in after-hours trading as just a fluke – the kind of thing one might expect to happen, say, once in a decade? Actually, once a month would be more like it. Be that as it may, Wall Street’s most talented shakedown artistes were letting Google fall hard as dusk settled on New York. With fools and optimists out of the market for the time being, shares in the search-engine giant were recording the spasms of panic-stricken sellers, some of whom undoubtedly were begging their own mothers to buy the stock with both fists as recently as a week ago.
What has changed? Only this: Q4 earnings did not live up to expectations. And it wasn’t a case of missing by just a penny or two, either: First Call was looking for $1.76 per share, but the actual number was $1.54. It may be scant consolation to those who went home long the stock, but there doesn’t appear to have been any significant insider selling in advance of the news. GOOG experienced moderate weakness in the first 30 minutes of the session but rallied 16 points thereafter, giving back only a third of the gain during the remainder of the day.
Google insiders, it would appear, can keep a secret. But as I’ve already conceded, this would be scant consolation to anyone unfortunate enough to be holding GOOG shares yesterday when the music stopped. I wasn’t one of them, but that doesn’t mean I came away from the debacle unscathed. In fact, I had neglected to cancel an ostensibly stingy bid for some QQQ Feb 42 calls. Difficult as these calls had been to acquire for 0.65 intraday, one could have bought a thousand of them for 0.55 when the after-hours downdraft hit in GOOG, a key component of the underlying index. Now, as far as we’re concerned, the best thing that could happen would be for the Feb 42 calls to go down the tubes over the next few days; for that would mean that the Feb 40-Feb 39 puts spread we hold 64 times -- effectively for nothing -- would increase in value by about $500, theoretically, for every $50 lost on the calls.
***
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 1 February 2006 | Digg This Article | Source: GoldSeek.com
