Click here to get a PDF of this post

 

 

 

 

 

This morning one of the best short play stocks of the year gapped up on earnings and provided a new opportunity for beat up longs to get out with their shirts and bears a chance to get short at a much better entry price. I took the entry and went short with put options as the trend reversed in the morning and the daily candlestick became uglier and uglier as the day went on. Besides the poor RIMM bulls that bought at the open the stock seemed to find no buyers above $8 as it plunged quickly from the double digit increase it had built in after hours and pre-market trading. As the day went on the daily candlestick on the chart looked familiar to me. Where had I seen the same exact candlestick before? Ah, good old Groupon was the one. My Groupon short early in the year became one of my biggest winners of 2012 (I played this in April). RIMM gapped above the 50 day today, Groupon also gapped above the 50 day in mid May but quickly returned to earth (See Charts below). There are simply no fundamental earnings drivers to sustain such absurd moves back up from the abyss. Sucking less than expected on earnings just does not create enough momentum to catapult a stock back into an up trend. This is why I am short RIMM and why I shorted GRPN in April. I use weekly in the money puts of course so if these stocks do have a take over rumor or some company buys them out my losses are limited to the price of the contract, selling short has an unlimited upside, put option losses are capped. It is important to know this.