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Big Shake-up at Diamond Foods…This is Totally Nutz!!! CEO and CFO are Out?!. Options Honey?! By: Tim Bolger

Shares of San Francisco based snack food maker Diamond Foods(DMND) tanked over 42% on huge volume this morning after the company announced yesterday evening that they would have to restate there 2010-2011 financial statements following the negative results of a 3 month Audit investigation that was not favorable for DMND shareholders in the short term… The audit was conducted because of an alleged accounting scandal over the momentum payment from DMND to its Walnut growers.. To put the icing on the cake, the CEO and CFO are being removed from the company.  Definitely not a fun day for those long the stock…However, I still love Diamond Foods Wasabi Almonds and the rest of their yummy products. So, I bought shares of the stock on all of this bad news today.  Consumers will continue to gobble up there tasty nuts around the globe for sure and this is a short term thunderstorm for the company that provides a great opportunity to buy the shares at a deep discount….

So what is the Options play?!  Diamond Foods: http://www.diamondfoods.com. Check out this article written by the Wall St. Journal today on Diamond Foods. The WSJ reports a record trading volume day in Put and Call Options on Diamond Foods Inc.: http://blogs.wsj.com/marketbeat/2012/02/09/taking-a-bullish-flyer-on-diamond-foods/?mod=yahoo_hs.

WSJ Reports: Diamond Food CFO’s To-Dos: Restate, Then Rebuild…

 http://blogs.wsj.com/cfo/2012/02/09/diamond-food-cfos-to-dos-restate-then-rebuild/?mod=yahoo_hs

I purchased the Feb 17, 2012 $23 strike Call Options on DMND today for $1.45 a contract and would be a buyer of the longer term Call Options as well. Attached is the Options Chains for the DMND June 15, 2012 Put/Call Options courtesy of Yahoo Finance:  http://finance.yahoo.com/q/op?s=DMND&m=2012-06. I would be a buyer of the DMND $22.50 strike Call Options for $3.40.  I am also a buyer of the stock under $23  a share and believe it is a great long term investment.  I love San Francisco and love this SF Nut Company!!! The Pringles acquisition may not happen now because of this terrible news today…however, I would personally prefer the company not to purchase Pringles from Procter and Gamble and feel that DMND is paying way too large a premium for this brand name chip franchise. Reuters reports:Procter & Gamble likely to terminate Pringles deal with Diamond Foods, NYT saystheflyonthewall.com (Thu 11:47AM EST).  Stay tuned to Optionshoney.com for more Options plays… 🙂

Check out the ten day chart of DMND courtesy of Fidelity Investments:

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Hecla Mining Pounded on Huge Volume!! Let’s Mine the Honey with Options… By: Timmy B.

Hecla Mining(HL) is down on heavy volume today as Reuters reports: UPDATE 1-Hecla cuts 2012 silver production outlook at Reuters(Wed 8:37AM EST).  Hecla Mining was originally founded in 1891.  Hecla is headquartered in Coeur d’Alene, Idaho and has a majority of its mining operations in the U.S. and Mexico.  Hecla’s primary business focuses on the discovery, production, and marketing of the following metals: gold, silver, lead, and zinc.

Hecla paid a .02 cent dividend on Nov 16, 2011 and traded to an intraday high of $11.56 on Jan. 3, 2011. Personally, I feel that Hecla is being punished severely in the short term by this news on cutting it’s 2012 silver production outlook.  My thesis is that this is a short term thunderstorm for Hecla Mining and that with the continued sovereign debt crisis around the globe, printing more U.S. dollars and inflation on the horizon, metals continue their long term trend higher. Higher metals prices will lead to higher profits and revenues for mining companies like Hecla Mining.

I definitely like the stock at these price levels and HL is trading down over 26% today, with an intraday low of $4.25.  I think the best trade here can be made using “Options” to benefit from the weakness in shares today.

So, the million dollar question is,  how do we make money on HL share price weakness?? Remember, one of the keys to profiting from options is patience and executing our trades at the best time, in an attempt to achieve our end goal of making money!! Tens of thousands of trades exist at all times and we seek to discover some of the best here for our followers at OptionsHoney.com.  Timing is so important to making money in the short and long run. Remember time value+intrinsic value=option premium we pay for the right to buy or sell puts/calls. In addition, high levels of volatility increase option premiums. When stocks fall significantly, the cost to protect these shares with put options rising significantly. This creates opportunity for the trade I want to make on HL today.

Option Trade#1 on HL: I like selling the HL Feb 18 4 puts for .25 cents. By selling 40 HL contracts, we collect a premium of $1,000($25 per contract x 40 contracts sold). If HL shares close above $4 at Feb 18 expiration we profit the $1,000 minus trading fees. Worst case scenario, we get exercised if the shares decline below $4 at expiration of the contracts and we have to purchase 4,ooo shares (40 contracts x 100 shares per contract) of HL at $4 a share for a net cost of $15,000 plus trading commissions (16,000 gross to purchase shares-$1,000 initial credit received for selling the $4 strike put options).  It is very important to remember that we need $16,000 in cash in our brokerage account to make this options trade as collateral to buy the shares of stock at $4, if we get exercised at expiration. Selling options is alot more sophisticated than just buying puts or calls. Feel free to ask questions that you may have.

Long term, I believe Metals and HL will trend much higher.  I am comfortable with the worst case scenario of having to go long HL shares at $4 if we get exercised.  Selling the put options helps me finance the potential purchase of these shares and take advantage of the increased volatility in HL shares with the bad news reported today.

Option Trade#2 on HL: I like buying the HL Mar 17 2012 $5 strike calls for .30 cents.  I can buy 10 contracts for only $300 and have great exposure to a near term bounce in the shares after this huge sell off today. The advantage of buying the calls is that I do not have any obligation to buy the underlying asset and cannot be exercised if the shares expire below $5 at expiration. My total risk of buying the $5 Mar calls is the $300 (10 contracts x $30 a contract)l plus trading fees.

It’s important to note that your broker is required to exercise those call options on you, even if they are only a penny in the money (meaning you get exercised if HL is $5.01 at expiration). To avoid being exercised, you need to call your broker’s trade desk and tell them not to buy the shares…Buying the shares would also require $5,000 (1,000 shares at $5 each) in cash in your brokerage account.

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Source of Hecla Mining Chart: Fidelity Investments

Show me the honey!!! The Buzzzzzzzzzzzzz goes on and on baby!!

–Timmy B

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