What amazes me, is I´m beginning to understand most of what you guys are talking about in jargon. Ryan has a puzzling point. Just read a couple of articles on this Earnings pop. Some examples using strangles and straddles Nobody is mentioning using a debit spread. So in conclusion you can use a strangle, a straddle or a debit spread. The only variable is getting a big enough gap. Even read one persons article on choosing that type of big gap stock also. I understand how the strangle and straddle go from trying them. Not the debit spread. I assume the same. You sell the winning side for a profit and hold the losing side, to see if you can get something back, before expiration Friday. Hoping your GAP is big enough to cover the loss otherwise. RYAN Any reason you prefer the debit spread?
It's one thing to dot-shot at 450 and quite another at 580. I very well may take $10 in heat at the open, but my guess is that we see 621 at some point tomorrow. If so, i will be out of shares in in volatility.
Early morning hours. And playing with the debit spread calculators. I´m not too swift with these things. My complicated arithmetic showed a DEBIT SPREAD STRANGLE would lose money. Maybe not much, but making it worthless to do it. So direction is the key on an earnings pop. So the debit spread makes your bet somewhat cheaper, at the cost of giving up some profit. It seems to work if you get the direction right for a 2% move even. Which some stocks do that in a week anyway. If you got both 1) direction and a 2) good mover - you could make a good profit. The winning ratio percentage or whatever it´s called is good. The only thing is getting the direction of the POP right. Think I´m going back to bed, my curiousity satisfied.
Actually there is a reason. Priceline.com lol. Here's the details: Say I want to risk $600 on PCLN, and as of yesterday's close, I would have to buy the PCLN Mar 630 calls at $6.00 just to get this trade in play. In turn, PCLN would need to trade above $636 for me to make any meaningful profits if I buy the long call. What if PCLN doesn't trade above $635? Instead of buying PCLN Mar 630 call at $6.00, what I can do (and it is what I did) is create a spread buying PCLN Mar 620 call and selling PCLN Mar 630 call for a net cost of $3.70 (might have been a little more towards end of day) or about $370 per contract. With this spread, I lowered the strike price to give myself a better chance of profit. It is also from my calculations that PCLN has an average gap of 6-7% from its prior closing price putting the shares around $626-$632. Like you might have mentioned earlier, the downside is that my profit is capped at $630 and I'll take that any day.
If AZO opens at $380, then I'm out. From a previous closing price of $366 to an opening price of $380, assuming I bought a $370/$380 call spread, I'd be out with what ever profit is showing in the account. The only reason I would hold this spread and close the short at $360 is if AZO opens below $366. But as long as AZO opens in my direction, I'm not going to hold these profits and see what happens. But assuming AZO, opens lower and does not rebound, then I'd be out of the trade. It only takes a few days of trading to see if the rebound will take hold. In this case, say AZO trades lower at the open today to $360. I'll look to close out the short 380 calls if AZO did have a strong quarter. The report was $4.15 with revenue at $1.8B against estimates of $4.04 with revenue at $1.78B. This report was strong, and from experience trading AZO, I know institutional traders will grab these shares at an chance that they can get for a lower price so AZO shouldn't stay down too long. Had earnings been weaker than the estimates, then I would have closed out the entire thing and moved on.
ryan Thankyou for taking the time to respond and clarify Ryan. In between other things, I´m collecting esoteric bits of information from all and sundry on these earnings pops. Let my subconscious work them over when I sleep. I find you can work these alternative ideas and calculate, far faster than I can even contemplate the ideas. I suppose like all skills, it comes with practice. Appreciated
I though CVC had solid support at $14. I just checked the numbers and their actual EPS was $0.22 vs. analysts estimate of $0.23. Imagine that, weaker number, but the shares are holding higher by 1% so far in premarket. It almost feels like there are buyers at these level holding the shares up. If anything, I'd just join the buyers here too. But just viewing. Same with SINA, I thought it was taken down too far, and the 50-day should hold here. It looked like afterhours for SINA should a trade down to $58, but this morning institutional buyers are back and its up $65.
Here's where I'm hoping the spread works to my advantage.....closed out the pcln short 630 c at 7.70....looking to close out the long 620 calls now.
out the long at avg price 15.65, profit on this trade was $624.10. Wish I had put more concentration into getting an AZO position too.....missed out on a great opportunity there too.
lol, maybe I should have overtraded yesterday and added SINA calls too....spot on in the research on SINA with expectation of rally from $63 and had a target of $70-$72.