I have long argued going back to 2006 that Garmin's product line has reached a saturation point. Coincidentally, just as I was making my case, several hard core Garmin longs were arguing quite the contrary that Garmin product lines have reached the inflection point to appeal the masses like iPod did once. In old days, I shorted the stock just above $100 and carried it all the way to $36 before finally closing out. 
So, what now? I still firmly stand by my arguments. Garmin has blown every possible chance they had to make Nuviphone even a remote hit. That was the only product that could've carried the momentum further, however well after Garmin's announcement we've had Palm, HTC, Samsung, Motorola and now Google all crawling into that space with Apple taking the lead. I will refrain from repeating plethora of fundamental research I have done in the past to arrive at my judgement. For those interested, you can search on Yahoo! message boards under spoiler79 going back to 2006. Instead, lets look at the short-term trading opportunity here.
Garmin fell off a cliff on 10/28 and again on 11/14 in 2009 based on poor earnings guidance (anyone surprised?). Garmin stated that 4Q09 sales will be softer than 4Q08. Here is a short summary from Reuters:
"Garmin, which posted a surprise rise in third-quarter profit, now expects to sell fewer units in the key holiday season quarter than it did last year, indicating that it expects weak demand. Shares of the company dropped almost 14 percent to as low as $27.14 in afternoon trade on Nasdaq after the weak forecast. They had risen about 10 percent when the company posted a profit that blew past market expectations. "The (third-quarter) beat, as impressive as it is, will likely do little to ease investor concerns about the sustainability of the PND business in a world of free Google mobile navigation," analyst Yair Reiner of Oppenheimer & Co said. "Against that backdrop, some holders may use any strength this morning as a pathway to a clean exit."
From a technical standpoint, Garmin shares are rallying today on rumors of potential buy-out by Microsoft. Nice try market makers!! The stock has almost entirely closed the gap from 10/28 and now forming a double top on daily chart (see attached). There is tremendous amount of congestion between $38 and $40 and with no earnings expected before Feb 23, it will take a lot of buyers support to clear that congestion if it were to rally further from here. I am going to use today's rally to build the following neutral-to-bearish Skip-Strike Butterfly. Specifically:
- Buy to open 20 contracts of Feb $40 strike puts
- Sell to open 30 contracts of Feb $38 strike puts
- Buy to open 10 contracts of Feb $37 strike puts
The whole position can be done for a net debit of $2.10 as of this writing. The position remains profitable as long as the stock remains below $39 (see attached) by Feb expiration. The position size can be changed as long as the combination of contracts remains unchanged to maintain the same P&L profile.
Good luck!
