Trades for the week of June18 to June22

This week was a good week for stocks, with stocks generally rising. The Dow Jones is at 12,650 now, a good increase for the week. Also, we have a major event coming up this weekend, the Greek elections on June 17th (Father's Day). I am eager to see whether SYRIZA will win, which means Greece has a high possibility of getting out of the Eurozone. This will have the Euro and the market plunge. Having the New Democratic party winning is also on the cards, which means that Greece has a high possibility of staying in the Eurozone. This will have the Euro soar, along with the market. I do not think that there will be a deadlock like the last time they had elections.
Not many companies reporting earnings this week, but there is one I'm recommending.
Trade 1: Straddle
Red Hat (RHT) reports earnings on June 20 after hours.
Currently trading at around $54.70, here is what I plan to do.
Buy a July 2012 ATM $55 Call Option
Buy a July 2012 ATM $55 Put Option
RHT is expected to shoot higher or lower up to 20%, or as low as 5%.
its IV is at a reasonable 45-50%, which means its good for a trade.

Here are some other option trades I'm going to do, explained thoroughly.
Trade 2: Synthetic Short
Tiffany & Co (TIF) has been on a steady downtrend since it reported earnings a while ago, dropping from around $60 to about $53.50 now. I believe that it will continue to plunge,so here is what I plan to do.
Sell a Nov 2012 OTM $60 Call Option, which will be at $2.20 now
Buy a Nov 2012 OTM $45 Put Option, which will be at $2.19 now.
That gives you the right to have the position, without paying anything!! In fact, you get one cent more. Although this is the case, this is a very risky trade, and I'd recommend that you do not put too large a portion of your portfolio into these trades. This is an unlimited profit-unlimited loss trade (that means you can lose more than 100%, which requires us to be real careful.
$2.19-$2.20=-$0.01
IV is in the 40-50% range , which is good for a trade.

Trade 3: Call
Whole Food Markets(WFM) has been on a strong uptrend in the past one-and-a-half years. It has climbed to around $92 now from its $70s, a year ago. Therefore, here is what I plan to do.
Buy a Aug 2012 ATM $92.50 Call Option.
Its IV is at a comfortable 30%, nothing to worry about.

Trade 4: Call
One of my favourite, Ross Stores (ROST) has been on a really strong uptrend, and the value retailer looks like it has no signs of stopping. It is now at $65.52, while just a year ago it was in the $30-$40 range. Therefore, here is what I plan to do.
Buy a Nov 2012 OTM $70 Call Option
Its IV is at a desirable 30% too, good for a trade.

Trade 5: Strangle
Carmax (KMX) reports earnings on June 21 before market opens.
Currently trading at $27.68, here is what I plan to do.
Buy a Jul 2012 OTM $27 Call Option
Buy a Jul 2012 OTM $28 Put Option
KMX is expected to shoot higher or lower within the 5% and the 15% range.
Its IV, within the 40-50% range, is worth a trade.

This Week's Stock: Ross Stores ROST
I know I have chosen Ross as one of my picks before, but I do not think that I have made a detailed report on it yet. On the technical aspect, it is great, it is on a solid uptrend-- it has doubled over the past year. Ross, in its upward channel, has stayed around the $60-$64 area over the past five weeks, building a nice base. It has broke out from that base, shooting to a price of $65.52 now. It is good on the technical aspect and holds a chance of breaking out. But that's not all I'm looking for, here are the fundamentals.
It has a simple and easy-to-understand business, it sells clothing, footwear and other accessories. But the difference it has with other branded apparel stores like Abercrombie and Fitch ANF or Michael Kors KORS is that it sells cheaper clothing. The many reviews that I have read tells me that although they can sell their clothes cheaper, the quality is not compromised. Many like going there to hunt for bargains or get clothes to wear for some special occasion (at a cheaper price). The catch here is, who does not like cheaper goods? As the economy worsens and Americans try to save more, Ross would be a better place to go to save money rather than to go to somewhere like Michael Kors KORS or Urban Outfitters URBN, which are considered more "expensive" options.
Ross has also been successful in its business, as they have opened many more stores in the US. It has 1,125 stores at the moment, from 896 just five years ago.

Store count: 2007 896

2008 954

2009 1,005

2010 1,055

2011 1,125
Its EPS has also been growing steadily, year after year, from 0.63 in 2003 to 2.86 today. Although its profit declined during 2003, when there was a slowdown, its EPS has been rising well since then. It has grown 16.3% annually. 8.90.
EPS retaining calculation: It has retained $12.51 in EPS in the past 10 years. Its price 10 years ago was $8.90, now its $65.52. Price change $65.52-$8.90=$56.62

$56.62/$12.51=4.53. Each dollar retained by Ross generated $4.53. This is a fabulous number

EPS: 2002 0.63
2003 0.735
2004 0.565
2005 0.68
2006 0.85
2007 0.95
2008 1.165
2009 1.77
2010 2.31
2011 2.86
Dividends has been growing at a very fast pace in the last five years and is likely to increase at this pace for the next 5 years as sales grow(shown below). Although its dividend yield is at 0.90%, as I said, I believe it will increase. After all, although dividends are important, it is not everything to look for about a company.
Dividends: 2007 0.16
2008 0.198
2009 0.24
2010 0.35
2011 0.47
Like its EPS, its sales number has been increasing continually through the recession and still growing. I am confident that, as it gets more goodwill, its sales will increase even if there is a recession. The 2003 decrease in EPS could have been due to the lack of goodwill.
Sales: 2007 5.975B

2008 6.486B
2009 7.184B
2010 7.866B
2011 8.608B
Even while sales, dividends, stores and EPS growed, long term debt did not grow, staying at 150M. A good company does not need much long term debt as it can generate enough money to support itself. In Ross's case, it has excess cash to distribute to its shareholders.
Final calculations:
Assuming it grows at this rate, by 2021, its EPS will be 12.98. With its average P/E in the last 10 years at around 17.5 and 5-yr forecasted EPS at 15, we will be assuming that its P/E is 16.25. At this P/E ratio, its price will be at $210.89. If it can maintain its $0.56 (2012) dividend for the next 10 years, its price will be at $216.49 in 2021. This is a $150.97 increase from prices now, or a 230.41% increase. Therefore, I find this momentum stock a great buy for the next 10 years.

P.S. Trades 2,3 and 4 were already done in my virtual portfolio yesterday, on Thursday 14 June.

For a profitable week!
Also, wishing a Happy Fathers' day to all the fathers out there.