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.
| Criteria | Value |
|---|---|
| Fair Value Estimate | $50.00 |
| Target Buy Price | $25.00 |
| Target Margin of Safety | 50.00% |
| Actual Buy Price | $47.50 |
| Actual Margin of Safety | 5.00% |
*Fair Value was lowered from $70 to $50 since inception which lowered my 32.14% Margin of Safety to 5.00%.
| Date | Stock | Description | Transaction | Status | Stock Investment | Income Generated |
|---|---|---|---|---|---|---|
| 8/16/2013 | WTW | Totals | ($4,750.00) | $146.54 |
Current Position Summary
| Cost Basis | ($4,750.00) |
| Income Generated | $146.54 |
| Percent Income Generated | 3.09% |
| Annualized Income Generated | 5.49% |
| Net Profit If Closed | $646.54 |
| Percent Return If Closed | 13.61% |
| Annualized Return If Closed | 24.23% |
| Days Held to Expiration | 205 days |
Trade History
| Date | Stock | Description | Transaction | Status | Stock Investment | Income Generated |
|---|---|---|---|---|---|---|
| 1/23/2013 | WTW | CSP Margin Used | CSP 100 WTW @ 47.50 | ($4,750.00) | ||
| 1/23/2013 | WTW | Initial Put Option | STO 1 Feb13 47.50 Put @ 0.64 | Exercised | $64.11 | |
| 2/15/2013 | WTW | CSP Margin Returned | CSP 100 WTW @ -47.50 | $4,750.00 | ||
| 2/15/2013 | WTW | Stock Assigned | EX 1 Feb13 47.50 Put @ -47.50 | ($4,750.00) | ||
| 4/12/2013 | WTW | Dividend Received | DIV 100 Dividend @ 0.18 | $17.50 | ||
| 8/1/2013 | WTW | Continued Trade | STO 1 Aug13 52.50 Call @ 0.65 | $64.93 | ||
| 8/16/2013 | WTW | Totals | ($4,750.00) | $146.54 | ||
| DTE | 205 | Percent Income/Annualized | 3.09% | 5.49% |
