I have a conundrum. I am a huge NFL fan, but as you know I can’t stand the idea of oligarchic team owners getting taxpayer assistance with their stadiums and their unbelievable not-for-profit(!) status which enables them to pay these ridiculous $20 million a year plus salaries for guys who play a game for a few months on TV. I used to boycott all college and professional sports for protest reasons. But when you grew up a football, basketball, baseball and track addict, it’s hard to not sneak in some SportsCenter and games.
Which leads me to my trader’s question of the day – Who do you think is the best bet on who will win the Superbowl this year? Here’s a list of the latest odds for each team: http://www.docsports.com/super-bowl-odds.html.
To be clear, I am asking for the best risk/reward play here, not just which team you think will win.
I’ll probably take the approach of narrowing the field down to the three or four teams I think are most likely to win the Superbowl and then I’ll go look at the odds being paid on each and will use that to determine which is the “best bet”. I don’t know how I’d go about making the actual bet on this and probably won’t get around to figuring out a way to do so, but it’s a great exercise for traders and investors alike to go through this kind of analysis and thought process.
Even if you hate to love the product supplying your data. Like I do with the dang NFL.
I’ve used exactly the above type of analysis as I’ve gone through and analyzed the risk/reward on hundreds of upcoming earnings reports. I tap all of my knowledge and fundamentals trend watching to make a list of companies that I think have the strong potential to report stronger than expected earnings and a list that I expect will report weaker than expected earnings. And then I’ll go back and look at the analyst notes on each of those companies and talk to other traders about those stocks and look at the chart of the ones that still seem like favorable risk/reward set-ups. And finally, I’ll look at either buying or shorting the common stock itself and go through the options to try to determine the single best way to maximize my risk/reward on the trade. And sometimes I’ll go through an entire earnings season without finding a stock that makes it through all that process. Other times, I’ll risk a small amount of capital on an “Earnings flip” trade. And sometimes if it’s one of our existing positions, I’ll use this kind of analysis to decide to add leverage or to hedge said position when this analysis warrants it.
Here are some earnings reports coming up tonight that I made notes about “better than” or “worse than” expectations to qualify each stock to through to the next phase of the above analysis.
| Amkor Technology Inc | AMKR | 0.13 | After Market Close |
| Express Scripts Holding Co | ESRX | 1.1 | After Market Close |
| Looksmart Ltd | LOOK | N/A | Time Not Supplied |
| magicJack Vocaltec Ltd | CALL | N/A |
| PMC-Sierra Inc | PMCS | 0.08 | After Market Close |
| Silicon Motion Technology Corp | SIMO | 0.26 | After Market Close |
Here are my fundamentals notes on each –
AMKR – Sells into the semiconductor industry in which Samsung among others is increasing cap ex. Other semi cap companies earnings have been strong.
ESRX – All things Obamacare-related are on fire. Expect this company to really profit/profiteer on the healthcare trends.
LOOK – Never mind. Penny stock.
CALL – VoIP plays like 8×8 are on fire and reported strongly. I’d like to short this stock at some point (sorry all my old VocalTec friends) because the MagicJack model is dead. This quarter or soon will likely show that expected deterioration.
PMCS – Communications chip provider, whose core business is the Internet/network core (pun intended). Ciena, Juniper, and most other customers of PMCS reported strongly and the stocks popped correspondingly.
SIMO – Have read some compelling analysis recently about the nice yield and long-term upside potential of this stock. Recently the company pre-announced “worse than” expected earnings and the stock hasn’t budged. Might be good long play if guidance/commentary on the call says business has improved?
In the end, I’ve pulled the trigger on two of those ideas — using a very small amount of capital.
In PMCS, I’m buying some August $6 calls for about 90-95 cents and I’m bidding on some November $6 and $7 calls for $1.05 and about 30 cents respectively. In SIMO, I’m buying some August $10 calls for about 75-80 cents.
And with that, I’ll leave you with another great debate — who was the greatest NFL running back of all-time? Jim Brown, Walter Payton, Barry Sanders, Gale Sayers and Eric Dickerson are my Top 5. Probably Jim Brown #1.
Jim Brown Greatest Running Back Ever