Thursday, August 1, 2013

WTW - Adjustment

The following adjustment was made today on Weight Watchers (WTW). All prices include IB commissions.

I had the opportunity this morning to exit this trade when WTW was trading between $47.50 and $48.00. A couple hours later the price dropped below my purchase price of $47.50, but still above my adjusted cost basis of $46. I checked the Aug call options and saw that the Aug 52.50 Call had a bid of $0.65, which is 1.36% of my $47.50 purchase price, and it provided an extra 10.52% return if called. Not bad for a 16 day trade. However, with earnings due after the close, this was a gamble. I could sell WTW before the close for a slight gain and avoid the earnings announcement, or sell the Aug 52.50 Call, which gives the stock some room to move up if earnings are good. I chose the later.

As it turned out, WTW beat analyst estimates, but revenue declined, profit forecast was cut, and the CEO resigned. The shares declined about 15% in after-hours trading and is now at $40.10. Obviously I would have been better off selling before the close and taken whatever profit I had, and then decide if I want to get back in after earnings. Now I'll review the earnings transcripts and M* analyst report, when they becomes available, to see if I want to continue holding WTW.

Fair Value Estimate$50.00
Target Buy Price$25.00
Target Margin of Safety50.00%
Actual Buy Price$47.50
Actual Margin of Safety5.00%

*Fair Value was lowered from $70 to $50 since inception which lowered my 32.14% Margin of Safety to 5.00%.

DateStockDescriptionTransactionStatusStock InvestmentIncome Generated
8/16/2013WTW Totals ($4,750.00)$146.54

Current Position Summary

Cost Basis($4,750.00)
Income Generated$146.54
Percent Income Generated3.09%
Annualized Income Generated5.49%
Net Profit If Closed$646.54
Percent Return If Closed13.61%
Annualized Return If Closed24.23%
Days Held to Expiration205 days

Trade History

DateStockDescriptionTransactionStatusStock InvestmentIncome Generated
1/23/2013WTWCSP Margin UsedCSP 100 WTW @ 47.50 ($4,750.00) 
1/23/2013WTWInitial Put OptionSTO 1 Feb13 47.50 Put @ 0.64Exercised $64.11
2/15/2013WTWCSP Margin ReturnedCSP 100 WTW @ -47.50 $4,750.00 
2/15/2013WTWStock AssignedEX 1 Feb13 47.50 Put @ -47.50 ($4,750.00) 
4/12/2013WTWDividend ReceivedDIV 100 Dividend @ 0.18  $17.50
8/1/2013WTWContinued TradeSTO 1 Aug13 52.50 Call @ 0.65  $64.93
8/16/2013WTW Totals ($4,750.00)$146.54
DTE205 Percent Income/Annualized 3.09%5.49%