drys earnings plays

Discussion in 'Options' started by droid17, Oct 17, 2009.

  1. droid17

    droid17

    Hi all :)

    Drys earnings are coming around the corner and I have two ideas and are looking for suggestions.

    First some background. I am long drys and are in at a little over 7. Looking at the charts is seems that ~5.40 has been the support for the last 3 months or so and it tried to break 7.50ish twice recently and has been unable to hold. It looks like it has been trading in roughly this range for awhile.

    I was thinking two ideas. The first is to buy the nov 7 call ~.65, sell the nov 8 call ~.25 and sell the nov 6 put ~.20. For a net cost of about .20 at the worse.

    This to me looks like a low risk high reward unless I am missing something?
    I am risking .20 for a >$2.00 gain if over 8.

    My second idea was just to sell the the nov 9 calls for ~.10 and sell the nov 6 puts for .20. Pocket the .30 if it finishes between 6-9. More long if it is less then 6 and + 2.30 > 9.

    Any thoughts??????

    Thanks,

    Droid
     
  2. Never sell naked puts to fund another position unless you are willing to own the stock or more stock inyour case.

    If the stock is range bound and you believe the range will hold, sell calls at the high end and your puts at the low end of the range.

    If you already own stock, I'd be selling calls and credit spreads above it in order to take in premium. Buying the call spred is a bet that the stock will stay or break out of the top of the range. Fine if you expect that but earnings is often a big guess-question mark.

    regardless of what you do, as earnings gets closer you might get more premium due to IV increase.

    ]
     
  3. Nexen

    Nexen

    Only amateurs and gamblers trade before earnings.

    Now instead of taking it as an insult, take it as well intended advice.
     
  4. droid17

    droid17

    Thanks for the reply TheoHornsby :)

    Yes I am long and therefore, it wouldn't be the end of the day if I had to own more and I could if needed roll the puts down out to Dec if that looked good.

    The only reason I was thinking the call spread was that looking at the charts the next stop up was >15. Therefore if earnings were really good and it broke the 7.50 8ish it may fly. I figured low risk for high reward. Just my thoughts.

    Thanks,

    Droid
     
  5. If the next stop up is > 15 then you shouldn't be monkeying around with options that cap your upside.
     
  6. droid17

    droid17

    My thought process was that I would have the shares I own right now be called off for about 1$ profit, and then I would exercise the 7 calls I bought and be about back where I am now, but 1$ up. If it doesn't break 8 then I just keep what I have now and the premium cut the cost of the call.
     
  7. There are a lot of things that you can do but first you have to decide whether you're an investor (looking for 15), mildly bullish (looking for 8-9 in the short run), looking for ycurrent yield, looking to acquire more shares at lower prices, or looking to conserve capital.
     
  8. droid17

    droid17

    Thanks spindr0 :)

    So in general you should pick a direction or range and go with it by picking a corresponding strategy. Rather then being all over the place and trying to do too much.
     
  9. That would be a good starting point. Stating the obvious, one wouldn't sell ATM naked calls if bullish or buy OTM calls if bearish, etc., etc.

    A long term investor might be more comfortable with selling OTM CC's or doing a covered call spread to leverage short term upside. Someone seeking some upside yet wanting a protective floor might prefer a collar. Etc., etc. The beauty of options is that you can tailor the position to shift the simple up/down R/R of equity to something more in line with your comfort zone. You can be anywhere from conservative to aggressive.
     
  10. Curious that DRYS Nov 7 Call IV is 10 points below Dec 7 Call.

    Since earnings are coming out in early Nov shouldn't Nov IV be greater than Dec?

    Just an observation.
     
    #10     Oct 19, 2009