Watching the Rocket Launch

When pessimism runs high, I mean really high, then any good news can launch a stock like a rocket. Generally these levels of pessimism can infuse a stock with high levels of short interest as well, only adding high-octane fuel to the rocket. This is clear in todays action when you look at Tumi Holdings (TUMI), Fossil (FOSL) and Grand Canyon Education (LOPE).

FOSL put up a better-than-expected quarter. Actually they all did, but FOSL's guidance was light. One might expect a muted reaction, but expectations were so low for luxury retailers this one has exploded to the upside. I was looking for some upside here, but this has far exceeded my highest projections. My trade yesterday was an August $75-85-90 skip strike call butterfly, which I wound up paying $1.90 for, the high end of my target, but what turned out to be worth it. The position's maximum value is $10 if FOSL were to close August expiration at $85, but with it trading above $90 I may be staring at a $5 value instead. This isn't bad, but still I prefer $10. Who doesn't?  I am going to add to this position buying an August $90-95-100 unbalanced call butterfly in a long-2 by short-3 by long-1 ratio for around $4.00....259 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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