How to play a gap-up

Discussion in 'Strategy Building' started by Chagi, Aug 9, 2005.

  1. Chagi


    Per this thread (, currently holding a long position TMTA.

    My intention isn't to get into a pump vs. bash thread over TMTA, but I am curious to hear from some traders on the forum as to how they would normally trade a stock that has experienced a large gap-up afterhours.

    For example, TMTA closed today at $1.06, last trade in AH was $1.29. I assume that it will likely open somewhere in the ballpark of $1.30 (depending on pre-market), so where do you play this from here?

    My speculation is that a bunch of entities will hop on the proverbial bandwagon tomorrow, causing a large upwards move on high volume, but the stock is also quite extended at this point. Any thoughts on this? I'm wondering if this could be the type of "volatile play of the day" that intraday traders look for (highly volatile, whether it goes up or down).

  2. You should like this news.

    19:02 After Hours Summary: CSCO down 4.0% on earnings report

    Companies moving in after hours trading in reaction to earnings:

    Trading Up: TMTA +22.6% (reported above single analyst est, beat on revs, sees break even or better cash flow in 2H);

    CHRD +12.9% (reported Q2 EPS); MAMA +6.7% (report Q2 results); CDCY +6.5% (reported Q2 results); SMSI +6.3% (beat by $0.01); ACTI +6.0% (beat by $0.03); GDE +4.7% (reported Q2 EPS); CELL +3.1% (reported Q2); GB +2.0% (beat by $0.06; guided FY05 EPS above consensus); AIG +1.9% (beat by $0.07)...

    Trading Down: HDTV -24.6% (missed by $0.02); ECST -24.2% (reported loss of $0.54); SRVY -19.2% (beat by $0.01; guided Y05 below consensus); ATAR -18.2% (reported $0.11 below consensus); SYMM -13.4% (beat by $0.01; guided below consensus); LGF -9.5% (reported a loss of $0.21); LOUD -10.0% (reported Q2); OPTV -9.5% (reported Q2, light on revs); SNDA -9.0% (missed by $0.03); TRDO -4.6% (beat by $0.01; issued Q3 and Q4 guidance); CSCO -4.0% (beat by $0.01, ex items); IPAR -3.5% (beat by $0.01; guided below consensus); PNRA -3.3% (reported in-line; guided ); DIS -2.2% (beat by $0.04, missed on revs)...

    Companies moving in reaction to news: AGI -8.0% (rescheduled earnings to the week ending 8/26); GILD -4.2% (results from second formulation of fixed-dose combination of Truvada, Sustiva did not demonstrate bioequivalence); NIHD -3.9% (announced $300 mln convertible notes offering).
  3. thats a tough call. the news sounds pretty good but you never know. if you have a large position it would be prudent to take some off.
  4. Don't assume where it will open, check the premarket to verify before the open.

    Check this chart:

    The stock was $4.00 one year ago, I think we have the possibility of going much higher.

    How many shares are you trading?

    How much risk are you willing to take?

    Is this Short term or Long term play?

    Gap Ups usually happen for a reason, they normally will continue for several days before leveling off.
  5. Chagi


    Yup, read over the earnings report, listened to latter part of the conference call, going to listen to the first half of the conference call later tonight.

    The price activity of the stock is what initially attracted me (there was a big ramp up on the day that cashflow positive was forecasted), but I've followed TMTA for nearly a year now, the new CFO has done an awesome job of turning the company around. IMO this is starting to look an awful lot like Rambus (RMBS) in terms of business model.
  6. Chagi


    Very small position (I'm a uni student, been trading for about a year with a small account for practical learning purposes). Bought in at $0.96, so I think that I'm quite comfortable in seeing how this plays out over the next couple of months.

    I'm going to be very, very interested to see how the market goes about valuing TMTA going forwards. If net income were to stay static at $0.04 for the next 3 quarters (and it is in fact likely to increase), a forward looking P/E of 30 could mean a stock price in the ballpark of $5.

    Hell, a couple of the analysts during the conference call were congratulating TMTA management on the turnaround. I don't think I've ever heard analysts talk like that during a conference call.
  7. any gap play is a coin flip if it has any news/rumors behind it.

    thats why people trade OPG on NYSE avoid stocks, and stocks within a sector w/news & earnings
  8. Chagi


    I see what you mean, and it makes sense.

    Right now I've thought quite a bit about where TMTA is headed tomorrow, and the best answer I've come up with is: "I don't know".

    About the best I could say would be that I think it has a higher probability of continuing to trend upwards than it does to move downwards.
  9. =========
    Wouldnt assume a gap up in irregular hours equals a gap up regular hours;
    but in this case it looks like big gap up.Partial profits are fine.

    Would normaly have my triger finger close $1.60 bid button;
    with a stock that moves 100% up /down in a month,
    anything can happen before some resistance @$2 area.
  10. TMTA

    Bid 1.58 Ask 1.59

    Much higher than the $1.30 you predicted.
    #10     Aug 10, 2005