Saturday, August 15, 2009

Take-Two Interactive Software TTWO

Take-Two Interactive is a video game publisher. The stock trades at about $10, with about $2 cash/sh. The fundamentals are a bit troubling because the company has negative earnings and industry-wide game sales are sharply lower than last year due to the recession and the lack of blockbuster title releases. New game releases and reductions in console prices may lead to improved sales for the game makers this fall. But for me, TTWO is strictly a breakout play. As the chart below shows, TTWO broke through and closed above its $10 resistance on August 13th. It currently trades above its 10, 50, and 200 DMA. I took a long position based on the technicals, and will sell if the breakout fails and it closes below the $10 support level.

Update (August 27th): The breakout still looks good despite continued bad news from the sector. TTWO earnings release is next week, and I don't want to guess on the outcome so I locked in the profit this afternoon.The chart is updated as well.

TTWO Trading History
August 13th, bought TTWO for $10.18
August 27th, sold TTWO for $10.69 (+5.0%)

Current Position:

Speculative Pharmaceutical Plays ACAD CADX KG MNKD VVUS

Action in biotech and pharmaceutical stocks have heated up lately as a result of acquisitions, partnerships, rumors of acquisitions and partnerships, and FDA approvals. In many instances, the moves in these stocks have been foreshadowed by unusual options activity.

I've taken positions in four stocks within the sector that have recently set off unusual options activity alerts:

King Pharmaceuticals (KG) caught my attention on August 4th when over 11,000 calls traded and a takeover rumor circulated on the internet ahead of its earnings report, which was scheduled for August 6th. I got a 9% pop following the earnings release and sold the stock on August 7th. But then on August 13th, the stock was halted, and it was announced that KG's abuse-resistant pain killer had won FDA approval. Analyst opinion was mixed on the news and the valuation of the company. I rebought the drug maker's stock on August 14th and sold August 27th (see trades below).

Vivus, Inc. (VVUS) has a few drugs in late stage clinical trials including Qnexa (obesity and diabetes) and Avanafil (erectile disfunction). VVUS calls got very active on August 3rd (over 6000 traded). I entered a speculative position in the stock based on the possibility of an upcoming announcement regarding data from the clinical trials.

Update (September 8th): Vivus will be releasing Qnexa results and holding a conference call tomorrow before the market opens. VVUS rallied 52 cents today to close at $6.91, then climbed over $8/sh in afterhours trading following the anouncement of the cc. I'm optimistic but sold half my VVUS shares for $8.20 during the a/h session for a 15.3% gain.

Update (September 9th): Qnexa results are in and they look pretty darned good. The stock surged today and I cashed in the rest of my shares at $11.95 (+68.1%)

MannKind Corp. (MNKD) develops drugs for the treatment of diabetes and cancer. Its pipeline includes Afresa, a fast-acting insulin therapy delivered by an inhaler. Options have been fairly active in August, particularly on the 13th, and with low put/call ratios. There have also been rumors of a possible partnership with a larger drugmaker. The stock was trading near support and oversold (RSI & Stochastics), so I entered a speculative position.

Update (Sept 8th): A takeover rumor made the rounds today, and I sold half MNKD for $8.75 (a 21.7% gain). I'll hold the other half since this stock has seen so much action over the past month and has held up well. MNKD closed at $8.73 (+72 cents) today.

Update (Sept 9th): A double top has developed in the chart and I sold the rest at $8.89 a share (a gain of $1.70). I have no idea if the rumored partnership will come to fruition. I'll look to get back in MNKD in the near future.

ACADIA Pharmaceuticals Inc. (ACAD) develops treatments for central nervous system disorders. For example, Primavanserin, which is in Phase III, is a treatment for Parkinson's disease patients. The calls got very active on August 13th (volume over 33,000), and an analyst mentioned that the stock could be worth around $15 on positive results for Primavanserin (or as low as $1 on negative results). The trial results are apparently expected to be released soon.

Update (9/1/2009): Primavanserin failed Phase III tests. Stock is trading below $2 premarket today. The call options will be a total loss.

Cadence Pharmaceuticals Inc. (CADX) makes drugs for use in hospital settings. It is developing the painkiller Acetevance, which is an injectable form of acetaminphen. The FDA decision date for Acetevance is November 13th. CADX options got active on August 7th, with bullish trades in the November calls. I have not taken a position in CADX yet.

Update (Sept 1st): I took a trading position in CADX, buying the shares for $9.91. Shares are near support from September 2008, May and August 2009 and near the lower trendline. This is a trading position only. I think shares have support here and the upcoming FDA action will add to that support. I'm not looking to hold this position into the decision in November. A stop just below support is in place.

Update (Sept 11): CADX seems to have reached an intermediate peak here and run out of momentum with mixed techincal indicators. I don't expect any upcoming events until the FDA action in November. I locked in profits by selling for $10.76 (+85 cents or +8.6%)

Trading History:
August 4th, bought KG for $9.37
August 7th, sold KG for $10.22 (+9.1%)
August 13th, bought VVUS for $7.11
August 13th bought MNKD for $7.19
August 14th bought KG for $10.30
August 14th, bought to open ACAD $7.50Sept Calls (.AQYIU) for $1.40
August 27th, sold KG for $10.68 (+3.7%)
September 1st, bought CADX for $9.91
September 8th, sold 1/2 position MNKD for $8.75 (+21.7%)
September 8th, sold 1/2 position VVUS for $8.20 (+15.3%)
September 9th, sold 1/2 position VVUS for $11.95 (+68.1%)
September 9th, sold 1/2 position MNKD for $8.89 (+23.6%)
September 11th, sold CADX for $10.76 (+8.6%)

Current Positions:
Long .AQYIU ($1.40)

Thursday, August 13, 2009 (STMP) originally caught my eye on a chart scan. I was looking for ascending triangle patterns, which are generally bullish and indicate accumulation. The pattern is characterized by an ascending lower trendline and a flat upper trendline. The usual way to play the ascending triangle is to buy on the breakout above the upper trendline. One can also get in at the bottom (the lower TL) and ride the stock to the upper TL (sometimes through multiple cycles before the breakout occurs). It is easy to pick good stops (close to the trendline).

Back to the stock at hand: STMP has the favorable pattern going, but also attractive fundamentals. It is profitable and has over $4/share cash. I caught this one as it neared the lower trendline and if things go right, I'll hang on until it tops out at $10.

STMP Trading History:
August 7th, bought STMP for $8.70.

Current position:
Long STMP ($8.70).

Wednesday, August 12, 2009

Dover Downs Gaming & Entertainment Inc (DDE)

DDE operates Dover Downs racino, one of three slots casinos in Delaware. Delaware casinos will soon be adding sports betting and table games, which could significantly enhance revenues.

Professional sports leagues and the NCAA are suing to stop the spread of sports wagering to Delaware. But on August 5th a federal judge refused to issue an injunction, and the casinos appear to be in the clear to begin taking wagers before the start of the NFL season.

Update (8/15): AP reports that a federal appeals court will expedite a hearing on the dispute over sports gambling between the state of Delaware, professional sports leagues and the NCAA. Oral arguments will begin on Augut 24th. Story from Story from USA Today.

Update (8/24): Judges have apparently ruled against Delaware today and single-game betting will not be allowed. Delaware casinos will still be adding table games, and presumably multi-game bets (parlays and teasers) will be allowed. I have closed out my position. Chart updated 8/24.

DDE Trading History:
July 24th, bought DDE for $5.60.

August 24th sold DDE for $6.75 (+20.3%)

Current position:

Wendy's / Arby's Group (WEN)

I first took notice of WEN on July 22nd when unusual call volume (around 10x normal levels) began setting off alerts. The next day, volume surged even higher. The spike in options volume preceded the company's quarterly earnings report by two and a half weeks.

WEN is attractive on several levels: strong and improving fundamentals, a great chart, and it is just getting noticed by analysts and the media.

Some of the highlights out of the quarterly report: swung to a profit compared to a loss a year ago, sees improving July sales, is on track to deliver $100 million in restaurant margin improvement at Wendy’s and $60 million in general and administrative savings by the end of 2011, commented on international expansion, and will introduce a breakfast menu in 2010.

Looking at the chart, we see a strong Channel Up. The stock trades above its 10, 50, and 200 SMA (all rising), with potential resistance points in the $5.50 to $5.60 range.

The Wendy's turnaround story is really just starting to get noticed. Barron's published a positive story in late June, and Cramer gave a positive opinion on WEN based on its valuation on Mad Money on August 10th.

WEN trading history:
July 22, wrote to open $5Aug Puts (.WENTA) for $0.55.
July 22, bought to open $7.50Nov Calls (.WENKU) for $0.10.
August 6, bought to close .WENTA for $0.25.

Current Position:
Long .WENKU ($0.10).