This article will demonstrate a possible way to trade an optionable IPO (Initial Public Offering) stock. Although a specific example will be utilized for this article, we do not urge the buying or selling of the underlying discussed here. This example is used strictly for educational purposes.
There are seven systematic steps that an option trader should go through when trading, regardless if the stock is an IPO or not.
Step 1: Fundamentals
Everything starts with the fundamentals and in this day and age, the fundamental data is so readily available on the internet that there is absolutely no excuse NOT to look it up. For instance, the DNKN (Dunkin’ Brands Group, Inc.) ticker can be typed into the Yahoo! Finance page. On the left side on the very bottom, we can find the Income Statement, Balance Sheet, and Cash flow. Figure 1 shows some data.
Dec 30, 2011
Dec 24, 2010
Dec 25, 2009
628,198
577,135
538,073
(Figure 1: Total Revenue)
The only tricky thing in reading these statistics is that you have to read them in the opposite way Johannes Gutenberg has conditioned us to read. The human eye can read in any direction, and reading from left to right is NOT the one and only way to do it, just because someone in Germany back in the late Middle Ages decided it was convenient for his movable type printing machine. The point of interpreting the Total Revenue on the annual basis is to observe whether the numbers are increasing or decreasing. Look right to left.
Step 2: Technicals
Without getting too deep into it, we should emphasize that it is wise to look for the Sympathy Move, meaning if one stock, mostly the leader, in a certain sector goes up or down, most likely it would bring the others in the industry with it. For instance, DNKN is in the Services Sector and Restaurant Industry…. Continue Reading
