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Archive for October, 2012

Closing Out The Options Play For The Apple Earnings Announcement

Monday, October 29th, 2012

Last week just before the Apple earnings announcement after the close on Thursday, I published an article on Seeking Alpha which suggested an options strategy to play prior to the announcement.  Basically, I spoke about taking advantage of the big Implied Volatility advantage for calendar spreads, and placing long-December (IV = 74) short-November (IV = 40) calendar spreads at many strike prices, both below and above the stock price.

Today I would like to offer you a link to the follow-up article also published at Seeking Alpha.

Closing Out The Options Play For The Apple Earnings Announcement

Here is the link:

Closing Out The Options Play For The Apple Earnings Announcement

IV for the December options fell more than we expected after the announcement.  This means that our original projections were too rosy.  We were fortunate enough to make a gain on the strategy nevertheless.   The learning experience was more valuable than the loss or gain.

An Interesting Options Play for Green Mountain Coffee Roasters

Monday, October 22nd, 2012

If you like a stock, there is a much better way to make money on it other than buying shares.  The answer is to use options, of course.  Today I would like to share one simple trade you can make as an alternative to owning the stock.  It should gain over 50% in two months even if the stock does not go up by a penny.  If the stock falls by 10% over that period, you should make about 20%.  Meanwhile, people who bought the stock would have absolutely nothing to show for their investment (except maybe a loss).

Why would you ever buy a share of stock when options could deliver these kinds of returns?

An Interesting Options Play for Green Mountain Coffee Roasters

Green Mountain Coffee Roasters (GMCR) has had a rocky year, but for the last few months it seems to have stabilized and might be worth a second look (especially if you could make 20% or more on it with options in just two months as I propose here).  First, check out a recent Seeking Alpha article Green Mountain: Stock Is A Good Brew.  It might give you a little confidence in the stock.
 
In the interests of presenting both sides, check out the downside case, also at Seeking Alpha – Stay Away From Green Mountain Coffee.  However, even this critic advises against shorting the stock. 

GMCR is selling at 9x or 10x earnings and doesn’t appear likely to have a big sell-off in the near future.  One option investor recently made a huge options bet that the stock will move higher – see Bulls Smell the Coffee at Green Mountain.  These options could return $5 million to the buyer if the stock is above $30 when the November options expire on the 17th.

The option strategy I suggest should make about 20% in two months even if GMCR falls by 10% over that time period.

I have watched this company for many years.  It is located in my home state of Vermont.  I used to play tennis with its founder, Bob Stiller, every week.  (I don’t want to brag, but I remember that I won about 90% of the matches – he seemed to be more interested in growing his company than staying in tennis shape.)   Just today, Bob donated $10 million to Champlain College, a local business school that has also been one of my favorite charities (and where I was a trustee for 11 years).

Here is what the risk profile graph looks like for the stock (currently trading at just under $24).  These positions cost about $2700 to put on:

 

The graph shows that a nice profit averaging over 30% can be made in two months at any ending price on December 21st which is higher than $22, and a profit of some sort at any price higher than $20.50.  This downside break-even point would mean that the stock fell by 14% from its current level.

Here are the actual positions that create the above risk profile graph:

 

I used 10 diagonal call spreads, buying January 2013 calls and selling December 23 calls for about $2.70 ($270 per spread).  This simple trade is far superior to owning the stock as far as I am concerned.  If the stock falls 10%, you still make about 20% on your investment.  If the stock stays exactly where it is on January 18th you should earn almost 60% on your money.

Why would anyone buy the stock when they could place a simple spread like this and make money even if the stock goes nowhere or even falls by as much as 10%?  It just doesn’t make sense to me.

—-

Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

How to Play Google Options Post-Earnings

Monday, October 15th, 2012

I have submitted an article to Seeking Alpha that I would like to share with you.

How to Play Google Options Post-Earnings

Here’s the linkGoogle Post-Earnings Option Strategy

This strategy will gain 20% in 60 days as long as Google (GOOG) doesn’t fall by more than $50 during that time.  The 20% should come if GOOG falls by $50, remains flat, or moves higher by any amount. Once earnings are announced, the stock usually quiets down a bit, making this strategy an attractive one, at least if you are bullish on Google. 

A properly-devised options strategy can protect you against a $50 drop in the price while leaving you plenty of room to prosper if the stock continues to rise over time.

Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

I look forward to having you on board, and to prospering with you.

Terry

An Options Strategy for Apple Bulls to Protect Against a $50 Drop in the Stock Price

Monday, October 8th, 2012

I have submitted an article to Seeking Alpha that I would like to share with you.

An Options Strategy for Apple Bulls to Protect Against a $50 Drop in the Stock Price

Here’s the linkApple Option Strategy

There seems to be a lot of interest in Apple (AAPL) these days.  While many investors are bullish on the long-run prospects for the company, many are concerned that in the short run they may have to endure a good-size drop in the stock price. 

A properly-devised options strategy can protect you against a $50 drop in the price while leaving you plenty of room to prosper if the stock continues to rise over time.

Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

I look forward to having you on board, and to prospering with you.

Terry

How to Play the Google Earnings Announcement With Options

Monday, October 1st, 2012

Today I submitted an article to Seeking Alpha that I would like to share with you.

How to Play the Google Earnings Announcement With Options

Here’s the linkGoogle Option Strategy

There are lots of ways to make money with multiple calendar spreads.  Finding an underlying stock which enjoys an implied volatility (IV) advantage is a good start.  If the options that you are buying have a lower IV than the ones you are selling, you are buying relatively “cheap” options and selling relatively “expensive” options.

A temporary IV advantage often arises in the few weeks before an earnings announcement.   It is especially true when the company has a record of exceeding or falling behind analysts’ estimates by a larger-than-average amount.  Apple (AAPL) and Google (GOOG) are two companies that fit in that category. 

Google is slated to announce earnings just prior to the expiration of the October (monthly) options.  Since a big move in the stock has historically often followed Google’s earnings announcement, the October options have soared in value (over double what they would be if an earnings announcement were not coming along).  This causes a significant IV advantage to buying calendar spreads at this time.

While having an IV Advantage stacks the deck in your favor, it should not be used as a sole determinate in choosing an underlying instrument to trade options on.  It is possible to make good returns with the 10K Strategy when you don’t enjoy an IV Advantage, but it is extremely helpful whenever option prices make it possible.  

Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

I look forward to having you on board, and to prospering with you.

Terry

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