New Game

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.