Last week I bought a stock option call YUM. A fitting name for a company that owns the brands of KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W Food Restaurants. I buy stocks in companies where I understand the business model, and fast food is something I see everyday. In the competitive fast food industries companies need to evolve to survive like Pizza Hut is in the delivery business delivering directly to the consumers home and Taco Bell is open late on weekends. Its important to see how a company operates on a daily basis to see if they made a profit or a loss that day. But as a investor you will never see the daily report of each division. However companies have a report card that comes out stating how they did the past 3 months. This report is called the EARNINGS report.
The Earnings Report also called “EARNINGS” is public information on the company web site it even tells you when the report will come out. So as a trader if you know the date you can buy the shares or options before the date if you think the report is going to have lots of profits thus making the price of the stock go up. You want to get in before the report comes out. But before the report comes out sometimes you can also see what management is doing. This is called Insider Transactions. On Jan 27 I notice upper management buying stock in YUM. Who else would know about insider information than the insiders themselves. If the insiders are buying, then follow the insiders and start to buy. Besides its public information. The SEC is like the paparazzi and the insiders are like celebrities. The insiders have to tell you when their buying or selling, its part of the regulations of being upper management. They are buying before the report comes out, which lead me to believe they know something about the report. I bought 5 call contracts at $85.00 or $425.00
In the next few days I saw the $85.00 turn to $100 than 115, 130, 140. and the report did not come out yet. This is where the greed sets in. How high will the stock price go? I was happy with $150.00, but then $225.00 then 275.00. As a trader, greed is very primal. I wanted more than 275.00. So I waited one more day thinking it would go higher, but it didn’t. I should have taken the profits when I had the chance. Everyone else was getting out of the stock. The price was going down really fast so I got out at $59.00 from $85. It was a loss on that trade.
Whats the lesson learned, before you enter a trade have a specific profit goal or time frame which ever is hit first get out and take your money. It is better to take a little money than no money. I’m going to update my check list to take profits #3 take profits