- Google (GOOG)
- Apple (AAPL)
- Caterpillar (CAT)
- Texas Instruments (TXN)
- SanDisk (SNDK)
- Walter Energy (WLT)
- Yahoo! (YHOO)
- Amazon (AMZN) By far the best with over a 1900% gain the following day
- Microsoft (MSFT)
To reiterate my previous blog post:
In this post, I will outline an option strategy that I use particularly during earnings season. This will put money in my pocket up front, give me a chance to purchase the stock for less than it's trading for now, and also give me gains if the stock moves even higher. I must note that this strategy could lose money if the stock moves much lower after results and you get the stock PUT to you at expiration (or in the rare case of an early exercise). This post requires the knowledge of stock options. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.
The table below shows some of the stocks I'm willing to go long (for reasons not discussed in this post), which will be reporting earnings in the two days mentioned above. To understand the table below read the example used with Visa (V).
With Visa reporting after the bell Tuesday, it may be a great day to sell put options as implied volatility will likely soar before the earnings release.
For example, let's say I'm willing to purchase Visa's stock at 7% less than its current share price. I would look to sell the November 70 strike Put options, and with the money received would look to purchase November 80 strike call options. Opening this position would put $40 in my portfolio. If Visa expires between 70 and 80 a share at November expiration, this position would return $40 (*NOTE* I always close my positions ASAP and do not wait for expiration). However, if Visa can get and close above 80 at November options expiration, this position has the potential to return even more. The break-even for this position is Visa at 69.60 a share at expiration; anything less would result in an unrealized loss on 100 shares of Visa stock. I would also look to purchase call options on the December 85 (instead of the November 80), as they have more time value and do not have the same high levels of the implied volatility factored into the option premiums.
|AK Steel Holding Corp.||AKS||17||22||$15|
|Buffalo Wild Wings||BWLD||35||50||$40|
|Sociedad Quimica y Minera||SQM||35||45||$30|
|Under Armour, Inc.||UA||30||35||$70|
|United States Steel Corp.||X||38||44||$40|
|Express Scripts, Inc.||ESRX||75||90||$60|
|First Solar, Inc.||FSLR||140||170||$160|
|Southern Copper Corp. ...||PCU||35||40||$115|
This is a bullish strategy and should not be considered if you think the stock will sell off after earnings. However if you feel you've missed the stock and think it could move sideways or up after the report, this strategy could yield a nice gain. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.
The list above are stocks which I wouldn't mind holding in my portfolio if they get PUT to me at expiration. These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
I use this strategy to open long positions when the market has rallied as much as it has. This strategy will allow me to purchase stocks for less, as well as provide a return without the stock if the market continues to rally. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.
Disclosure: Long AAPL December 200 Call Options, AAPL LEAP 100 Call Options, GOOG LEAP 300 Call Options, V November 60 Call Options, Short AAPL November 220 Call Options
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