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Options Trading Series: Earnings

This is a series of posts to test how well selling options perform for earnings plays. Earnings are considered the most risky and many think of it as gambling.

When companies release earnings 4 times a year, it’s considered a binary event where the stock can experience large moves. Because of these violent moves the options can become very expensive.  Since the options are very expensive the idea is to sell them to other people or put another way, go short the options.  You sell options above and below the current stock prince, in effect sandwiching the stock within a range that you don’t think it will break out of.

Think Or Swim (TOS) has available many statistics including the expected move.  So you sell options right outside the expected move of the stock.

The hard part is managing the losers, when the stock exceeds the expected move putting the options into a loss.  That’s when you have to use rollover strategies to recover from the trade. That is the hard part and which is the most crucial part of selling options, imho.

Long the YEN

I posted about this trade here: http://ibankcoin.com/xtrada/2013/01/02/happy-new-year-and-going-long-the-yen/

Basically it reached the target I set in November 2012 so I thinking we’ll get a pullback. It’s very risky since the YEN looks like it’ll fall forever.

Bought some FXY Feb 115 Calls:

Yen_030113

It feels a bit early so I’m willing to buy additional calls down to the low $111 level in FXY.

ACN – Out 70%

Sold 70% of my shares @ 69.67

Moving the stop to 68.69 for the remaining 30%. Target is 70.80 – 71 range (the horizontal grey line in the chart).

Why did I sell now?  My risk (R) in this trade was 68 cents, or R = 0.68.

ACN went up to 2R or 1.36 , actually it was 3 cents shy (only went to 69.75), but when it started to come down I sold off.

It’s a whippy market so it’s better to just take singles instead of trying to get home runs. Getting 2 times my initial risk is a solid trade, I’ll take that anyday.

ACN_Dec052012

EA

Long EA @ 14.58

Will buy more if we get a pullback to the daily 20 ma that I was hoping for.

ACN, EA, SWHC

Long ACN @ 68.42  , looking for the break of the last 3 day consolidation. This should be a fast trade lasting a few days.

Stop @ 67.74

ACN_Dec042012

 

 

EA is pulling back nicely, looking to enter after confirmation on hourly chart.

 

SWHC is interesting, looking to go long on the break of the recent highs or a break of today’s high sometime tomorrow.

Stop would be the under the low of yesterday @ 10.78.

SWHC_Dec042012

AAPL – Out

All out of AAPL @ $574.85, when it broke through the previous day’s low I decided to bail.

Will watch for re-entry but will need a good setup.

FMCN , GMCR – Rolling the Dice

No great technical setups….Bought the following calls:

FMCN Dec 26 @ 0.45  It’s been beaten down so bad how much worse can it get??? 🙂

GMCR Dec 33 @ 1.43  It still has a huge gap to fill so earnings is a good catalyst to do it, that’s the theory at least.

UPDATE (Nov. 28):

GMCR got a nice pop this morning, sold out at $3.10 for $1.67 profit, a nice little gambling bonus. Unfortunately I sold close to the open so I didn’t realize another 60 – 80 cents of profit had I wait after the first 30 mins. With the market tanking I didn’t want to take the risk and sold out.

FMCN did not gap up but is moving up nicely in the first half of the day. Since the option has some time left I’ll see how it does over the next week. I probably should just sell out at break even but since the option was so cheap I’ll let it ride.

EA on watch

Looks like it’s finally breaking out of it’s 4 month consolidation. I missed the initial break and have been watching it since. Want a pause or pull back before getting in.

Target is around the $16.70 – $17 area.

One good thing about these strong runners is that they are great for intra-day pull back trades on the 15minute and hourly charts.

Early Christmas

All out of YHOO, last lot @ $18.80

I was looking for a steady climb into the $20 range but it kept on going and finally today Goldman Sachs decided to put it onto their “Conviction Buy” list which resulted in a nice gap up. I took that as a sign to exit and wait for the stock to calm down. I’ll be tracking this one to re-enter, possibly in a week or two.

AAPL continues to be strong so I’m raising the target on my remaining shares to $620. New stop has been raised to $573.70.  The setup yesterday was actually a nice one to add shares, oh well.  Awesome stock, awesome products.   Definitely my stock of the year.

Courtesy of Apple subsidizing some speculative earnings plays, I’m looking at FMCN for today’s announcement after the bell.

AAPL – Scale out

Out half my position at $544.13. I don’t like the huge gap up at the open.

Will scale in if it pulls back.

 

Update: stock is just crazy, so I sold out another 25% @ $567.13.  Moving stop to $536.13 on remaining shares.  Target (daily 20ma) is now at $575.