Since I have just started playing options a couple weeks ago, this Friday brings a whole new strategy for playing earnings. Before, you would have to buy an option the day before the earnings were announced and sell the following day. With options experation now behind us for April, a couple of things change. One, options are more expensive. Since the option is good for another month, it has an added time value to it. Two, you can hold the options longer and sell at different times if you want. Without the pressing need to sell before experation, you can wait longer to sell your options and give the stock more time to get in the money. Also, before today I would always sell both the call and the put on the same day, usually within minutes of eachother. However, it is not possible to sell one and keep the other for longer if you feel a stock could continue to move in a particular direction in relation to the strike prices.
Review of Yesterdays Play:
Well, AMD turned out to be a bust. While history had showed big price swings the day after releasing earnings, not even a huge miss could send AMD low enough to make money on a straddle option. Earnings missed, but it apprears that investors are holding the price up due to the idea that it might get bought out by a private equity group in the future.
Play for Next Week:
My next earnings play is USG Corporation, which is releasing earnings Tuesday before the bell. With moving to May options, this has become my most expensive straddle play to date. In looking up historic earnings movement on the company, I found that the stock moved on average 7.4% the day after releasing earnings. With options being worth 7.7% to straddle, it costs a little more than the average movement. However, I like the play due to the time value that is still created with these options. If there is even a 2% time value in the options, it appears to be a fairly decent play for these prices.
Friday, April 20, 2007
Thursday, April 19, 2007
Welcome
Hello everyone,
Since I have started playing earnings and options more recently, I figured I would start up this blog to give my ideas on any potential plays and review previous ones. While I am still relatively new to the options game, I am in the money in 3 out of 6 plays. More importantly, the winners outweigh the losers by a good amount. So far, I have only tried to do straddle options, buying a call and a put at the same strike price, on the expectation of earnings volatility. I was drawn to this by losing a couple equity earnings plays and noticing the extreme price movements many stocks can have after releasing earnings. I then decided to play options so that I can potentially make money if a stock declines or rises sharply after earnings.
In addition to options, I have been trading equities for about a year and a half. While I have had some big winners, I have taken my licks and learned my lessons (hopefully). All in all, it is a learning process, and hopefully I can continue to better my abilitities in this area of investing as well. Currently, all of my equity holdings are Chinese companies listed on US markets. I feel the China poses a great opportunity as their economy is expanding rapidly and the government is helping some of the new startup companies out in order to foster growth.
Play for tomorrow:
For tomorrow's trading I bought a straddle on AMD at $14 a share. The stock has been beaten down for a while and there appears to be the potential for strong pressure to either the up or down side. While AMD has reported a much wider loss than expected, the stock is currently up after hours as it appears investors might have already factored a major disappointment into the stock price and are showing some optimism for the future. I will try and report back on this play tomorrow.
Thank you for reading,
Brian
Since I have started playing earnings and options more recently, I figured I would start up this blog to give my ideas on any potential plays and review previous ones. While I am still relatively new to the options game, I am in the money in 3 out of 6 plays. More importantly, the winners outweigh the losers by a good amount. So far, I have only tried to do straddle options, buying a call and a put at the same strike price, on the expectation of earnings volatility. I was drawn to this by losing a couple equity earnings plays and noticing the extreme price movements many stocks can have after releasing earnings. I then decided to play options so that I can potentially make money if a stock declines or rises sharply after earnings.
In addition to options, I have been trading equities for about a year and a half. While I have had some big winners, I have taken my licks and learned my lessons (hopefully). All in all, it is a learning process, and hopefully I can continue to better my abilitities in this area of investing as well. Currently, all of my equity holdings are Chinese companies listed on US markets. I feel the China poses a great opportunity as their economy is expanding rapidly and the government is helping some of the new startup companies out in order to foster growth.
Play for tomorrow:
For tomorrow's trading I bought a straddle on AMD at $14 a share. The stock has been beaten down for a while and there appears to be the potential for strong pressure to either the up or down side. While AMD has reported a much wider loss than expected, the stock is currently up after hours as it appears investors might have already factored a major disappointment into the stock price and are showing some optimism for the future. I will try and report back on this play tomorrow.
Thank you for reading,
Brian
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