Option Trade 
Keurig Green Mountain Inc (NASDAQ:GMCR) Puts 
Friday, May 15, 2015

**OPTION TRADE: Buy the GMCR Jul 2015 95.000 put (GMCR150717P00095000) at or under $2.50 (depending on market conditions this may need to be monitored to enter the trade). Place a protective stop loss at $1.00, and a pre-determined sell at $6.25 (again, this may need to be adjusted – 60% loss and 150% profit).

by Ian Harvey

May 15, 2015

Introduction

On May 6th the recommendation was to buy GMCR Jun 2015 100.000 puts at $3.50 and sell for $7.00.

Keurig Green Mountain Inc (NASDAQ: GMCR) fell, due to the earnings report, from $110.00 to about $97.00, but unfortunately this was just short of our projected target. However, there is now a chance to recover from this situation and also extend the scenario, and profit further, since several new factors have emerged.

The Situation Now!

Despite the efforts of insider buying and upgrades by analysts, which has produced a “dead-cat” bounce -- a small, unsustainable rebound that occurs after a dramatic price drop – (see chart below) GMCR is now under pressure due to a couple of further issues…...

1. The technicals -- the already mentioned “dead-cat” bounce, which is in motion.

2. Glancy Prongay & Murray LLP announced that it is investigating potential claims on behalf of investors of Keurig Green Mountain, Inc concerning the Company’s recent disclosures regarding slowdowns in the sale of the Company’s Keurig 2.0 brewer; as well as the announcement that the Company would delay the launch of its newest product offering the Keurig Kold brewer.

On May 7, 2015, the Company announced revenues and earnings that fell below analysts’ expectations; projected flat to low-single digit year-over-year net sales growth, compared to its previous guidance of mid-to high-single digit growth; and also reduced its free cash flow range to $120 million to $170 million, down from an expected range of $225 million to $325 million. Keurig blamed its poor performance on confusion about pod compatibility with the Keurig 2.0 brewer, and on issues with partnerships in its K-cup brand coffee and tea offerings.

On this news the Company’s shares fell $9.92 per share, or 9%, to close on May 7, 2015 at $98.16 on volume of nearly 10 million shares.

3. Then, yesterday, after the market closed, the company unveiled new details of its forthcoming cold beverage system, saying the machines will cost around $300 or more and will be rolled out slowly over the next year and a half.

The company said it would roll out the Kold product in a “deliberate manner,” making it first available online this fall, then gradually releasing it to stores until a full national rollout by the 2016 holiday season.

The slow roll-out and relatively high price point prompted skepticism from several investors and analysts who attended the presentation, worried about price. They seemed to think it might be too high.

Again, this has given the ammunition for the company’s stock to slide by more than 5 percent in after-hours trading after the announcement. Prior to the Keurig Kold presentation, the stock had closed at $103.08 in regular trading.

The Chart

The first news caused the stock to complete a head-and-shoulders top — a bearish reversal pattern, which was completed on May 7th, when GMCR closed below the support level of the pattern.

It is now anticipated that the stock will quickly return to recent support at $95 and will then continue to drop lower toward the longer-term price target established by the completion of the head-and-shoulders pattern.

Based on the pattern, expectations of the amount the stock will drop could be as far as $60.00.

Therefore, based on the facts above the following options trade is recommended…..


**OPTION TRADE: Buy the GMCR Jul 2015 95.000 put (GMCR150717P00095000) at or under $2.50 (depending on market conditions this may need to be monitored to enter the trade). Place a protective stop loss at $1.00, and a pre-determined sell at $6.25 (again, this may need to be adjusted – 60% loss and 150% profit).



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Options traders win because they are successful.



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