A Brief Guide to Options to Swing Trade

Option swing trading is advantageous as it enables you to maximize potential rewards while minimizing potential risks. Those involved in option swing trading are able to leverage their investments by purchasing and selling in a variety of combinations. Options are termed wasting assets: time significantly impacts option prices and trade profitability. The value of the options falls as their expiration date nears. Investors must therefore liquidate their positions prior to option expiration if they realized their profits. Unprofitable options expire on the final trading day of that particular option.

Autozone (AZO) Climbs as Earnings Approach

Despite a slight sell off down to the $175 a share range along with the market swoon Monday this week, the stock of Autozone (AZO)continues to perform and is close once again to a new 52 week high. The stock has moved back to $185 over the past three days within reach of the current year period high of $187.94. With earnings season approaching, the stock should behave well over the near term.

Markets Fall and Will Fall Further

The markets began correcting at the end of April with three out of four of the market stock indexes now giving a sell signal. Taking a look at the ClearStation.com index charts present on their home page, you can clearly see the top formations and the hold signals at the end of April this year. The sell signals all came yesterday on the major downturn for the markets with the Nasdaq Composite, the Down Jones Industrials, and the Standard & Poors 500 all in the red today.

Goldman Sachs (GS) Earnings Improve

I recently wrote about exiting a Goldman Sachs (GS) position because the earnings expectations were falling weekly leading up to an earnings release. Well let’s state for the record that selling a Goldman position before a government criminal probe is something that is lucky and makes for good conversation with wide smiles. But the odd thing about the stock movement down is the earnings estimates have now become very attractive.

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Finally Sold Goldman Sachs (GS)

I have been holding Goldman Sachs (GS) stock for quite some time and had been looking for a good opportunity to exit the position. Earlier this week I got the chance to sell and took the opportunity to end the trade with a small 5-6% loss. The stock had rallied up to $189 a share at the end of October 2009 but estimates began to slip and the stock steadily fell to below $150. A recent financials rally pulled Goldman Sachs from the price of $148.72 up to $177.90 a share on March 19th. During this time the fundamentals of the company did not change.

The current earnings estimates are as weak as ever for Goldman. Just this week, estimates were cut again from $4.13 a share in the current quarter down to $4.02 a share. Revenue is rising this quarter at 18% compared to the same quarter a year ago. But revenues next quarter are expected to fall 14.8% with current year revenue flat compare to 2009.

Furthermore, the Russell 2000 gave a hold signal 5 trading days ago and Goldman Sachs stock broke down through a top formation, it looks like an excellent time to sell. The stock price fell to $172.87 on March 26th to rally the next day. But has now fallen to $170.63 a share, creating a pretty decent top formation from a technical perspective. A continued financials rally could stabilize the stock near its current level but the underlying fundamental problems should keep it from rallying with the rest of the industry.

Express Scripts (ESRX) – Riding the Health Care Wave?

Express Scripts, a provider of pharmacy benefits management including retail management, card programs, home delivery, specialty and formulary management among other services has climbed to new 52 week highs as recently as yesterday. With the passage of a portion of the Obama Administrations Health Care Reform Bill, health care stocks in many sectors have rallied. But Express Scripts also shows great sales and earnings growth at a reasonable price.

The company’s stock has moved from $48.05 a share to a recent 52 week high of  $103.24 a share. More than doubling over the past 12 months. Revenue is growing 93% for this quarter and next quarter compared to the prior year numbers. While earnings is expanding roughly 28% this quarter and 35% next quarter, according to recent estimates. Analysts have bumped their earnings expectations over the past three months from $1.06 a share for first quarter of the year to $1.10 a share.

The price of the stock compared to its earnings (P/E) is 20.64 midway through the trading day today. When considering Express Scripts’ nearest quarters, this is a very reasonably priced stock. The 5 year growth rate is tempered at 19.6% which allows the PEG to be reported at a more standard ratio near 1. I believe the stock will continue to move higher with investors interested in industry due to the recent government action. The company will also report their first quarter earnings the last week of April, which should create additional interest from traders.

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Capella Education Company (CPLA) Continues to Perform

Capella Education through its subsidiary Capella University has performed well over the past year rising from $50.34 a share to a recent 52-week high of $86.06. The provider of post-secondary education recently beat it’s fourth quarter earnings expectations and has seen it’s first quarter expectations increase steadily from 64 cents a share to 78 cents over the quarter.

The company will report its first quarter results on April 27th and could continue to move higher if expectations improve again. Revenue for the quarter as compared to last year is improving 29% according to analysts. With early revenue increasing 26%. The quarterly earnings are even more optimistic than the revenue numbers with an increase for the first quarter being 59% better than the same quarter last year.

An end-of-the-day price to earnings ratio (P/E) of 25.29 is low when compared to the quarterly growth but on par at a PEG ratio of 1.02 when compared to a 5 year estimated growth rate of 24.88%. The recent run has been quite steep so selling part of a trade at this time is a better ideal than adding to a position. Wait for a decline in the price weeks before the earnings to resume purchasing shares.

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