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Archive for the ‘Earnings Announcement Options Strategy’ Category

Legging Into a Short Iron Condor Spread

Monday, March 3rd, 2014

Today I would like share with you the results of an actual trade recommendations I made for my paying subscribers on January 4th of this year and how subsequent price changes have opened up option possibilities that can further improve possibilities for a first investment.

Please don’t get turned off by what this new spread is called.

Terry

Legging Into a Short Iron Condor Spread

In my weekly Saturday Report that I send to paying subscribers, on January 4, 2014 I set up an actual demonstration portfolio in a separate trading account at thinkorswim in which I made long-term bets that three underlying stocks (GOOG, SPY, and GMCR) would be higher than they currently were at some distant point in the future.  The entire portfolio would make exactly 93% with the three spreads I chose if I were right about the stock prices.

Almost two months later, things are looking pretty good for all three spreads, but that is not as important as what we can learn about option possibilities.

If you recall, early this year I was quite bullish on Green Mountain Coffee Roasters (GMCR) which has recently changed their name to Keurig Green Mountain.  The major reason was that three insiders who had never bought shares before had recently made huge purchases (two of a million dollars each).  I Googled these men and learned that they were mid-level executives who were clearly not high rollers.  I figured that if they were committing this kind of money, they must have had some very good reason(s),  Also, for four solid months, not a single director had sold a single share, something that was an unusual pattern for the company.

My feelings about the company were also boosted when a company writing for Seeking Alpha published an article in which they had selected GMCR as the absolute best company from a fundamental standpoint in a database of some 6000 companies.

This is what I wrote in that Saturday Report – “The third spread, on Green Mountain Coffee Roasters (GMCR), is a stronger bullish bet than either of the first two, for two reasons.  The stock is trading about in the middle of the long and short put prices (70 and 80), and the time period is only six months (expiring in June 2014) rather than 11 or 12 months.  I paid $540 for the Jun-14 80 – Jun-14 70 vertical put credit spread.  My maximum loss is $460 per spread if the stock closes below $70, and I will make 115% after commissions in six months if it closes above $80.”

This vertical put credit spread involved selling the Jun-14 80 puts for $13.06 and buying the Jun-70 puts for $7.66, collecting $540 for each spread.  I sold 5 of these spreads, collecting a total of $2700.  There would be a maintenance requirement of $5000 for the spreads (not a margin loan which would have interest charged on it, but an amount that I couldn’t use to buy other stocks or options).  Subtracting what I received in cash from the maintenance requirement, my real cost (and maximum loss) would be $2300.  If GMCR closed at any price above $80 on June 21, 2014, both puts would expire worthless and I could keep my $2700 and make 115% after commissions (there would be no commissions to pay if both puts expired worthless).

An interesting side note to the $2700 cash I received in this transaction.  In the same account, I also owned shares of my favorite underlying stock.  I am so bullish on this other company (which is really not a company at all, but an Exchange Traded Product (ETP)) that I owned some on margin, paying 9% on a margin loan.  The cash I received from the credit spread was applied to my margin loan and reduced the total on which I was paying interest.  In other words, I was enjoying a 9% gain on the spread proceeds while I waited out the six months for the options to expire.

In case you hadn’t heard, GMCR announced on February 5th that they had executed a 10-year contract with Coke to sell individual cups on an exclusive basis.  The stock soared some 50%, from $80 to over $120.  In addition, Coke bought 10% of GMCR for $1.25 billion, and gained over $600 million on their purchase in a single day.  Obviously, those insiders knew what they were doing when they made their big investments last November.

Now I am in an interesting position with this spread.  It looks quite certain that I will make the 115% if I just sit and wait another 4 months.  The stock is highly unlikely to fall back below $80 at this point.  I could but back the spread today for $.64, ($320 for the 5 spreads) and be content with a $2380 gain now rather than $2700 in June.

But instead, I decided to wait it out, and add a twist to my investment.  Since the deal with Coke will not reach the market until at least 2015, it seems to me that we are in for a period of waiting until the chances of success for single servings of Coke are better known.  The stock is probably not going to move by a large amount in either direction between now and June.

With that in mind, I sold another vertical credit spread with June options, this time using calls.  I bought Jun-14 160 calls and sold Jun-14 150 calls and collected $1.45 ($725 less $12.50 commissions).  These options will expire worthless if GMCR is at any price below $150 on June 21, 2014, something that I believe is highly likely.  I think it has already taken the big upward move that it will take this year.

If the stock ends up at any price between $80 and $150, I will make money on both spreads that I sold.  Now the total I can gain is $3400 (after commissions) and my net investment has now been reduced to $1600 and my maximum gain is 212% on my money at risk.

This new spread will not have any maintenance requirement because the broker understands that I can’t lose money on both vertical spreads I have sold.  He will look at the two spreads and notice that the difference between the long and short strike prices is 10 for both spreads.  As long as he is setting aside $5000 in a maintenance requirement on the account, he knows that I can lose that maximum amount on only one of the two spreads.

What I have done is to leg into what is called a short iron condor spread (legging in means you buy one side of a spread to start, and then add the other side at a later time – the normal way to execute a spread is to execute both sides at the same time).  You don’t have to know any more about it than know its name at this time, but I invite you to become a Terry’s Tips Insider and learn all about short iron condors as well as many other interesting options strategies.

Follow-Up on Green Mountain Coffee Roasters

Monday, February 10th, 2014

Twice in the past three weeks I told everyone why I was bullish on Green Mountain Coffee Roasters (GMCR) and how I was playing the options prior to their earnings announcement last week.

If anyone noticed, the stock is trading about 40% higher now after the company announced a 10-year deal with Coke for selling single portions of Coke.

This was one of those sad times where I was right but didn’t make very much money from the great news, however.  Such is sometimes the plight of owning options.  Almost anything can happen, depending on what kind of a spread you put on.

Enjoy the discussion of three kinds of option spreads.

Terry

Follow-Up on Green Mountain Coffee Roasters

This is what I wrote two weeks ago – “I bought a diagonal call spread, buying GMCR Jun-14 70 calls and selling Feb1-14 80 calls.  The spread cost me $9.80 at a time when the stock was trading at just below $80.  If the stock moves higher, no matter how high it goes, this spread will be worth at least $10 plus the value of the time premium for the 70 call with about 5 months of remaining value, no matter how much IV might fall for the June options. The higher the stock might soar, the less I would make, but I expect I should make at least 20% on my money (if the stock moves higher) in 17 days.”

While the spread could not lose money no matter how high the stock might go, this was not a great investment to make if you were as bullish on the company as I was.  The more it rose above $80, the less it would make.  A 40% move on an earnings announcement is highly unusual, but that is what happened.

When the stock traded down a bit last Friday, I sold that spread for $11.00, making $1.20 less commissions of $.05, or $1.15 ($115 per spread).  That worked out to about 12%.  I will never complain about making a gain, but this was a major disappointment when I was so right about how the stock would move after the announcement.  It just moved a whole lot more than I expected.

Last week I told you about another spread I placed on GMCR before earnings.  This was a calendar spread (same strike, buy one further-out month and sell a shorter-term option).  The trick was to pick the strike price you believed the stock would end up after the announcement.  With the stock trading at $80 before the announcement, I suggested to pick the 85 strike (buying April calls and selling March calls for about $.80 per contract).

The further away from $85 the stock traded after the announcement, the less well the calendar spread would do.  On the other hand, if you correctly picked the price, you could make 200% or more on your money.  When the stock soared $30 and was trading around $110, this spread lost about half its value (I actually bought 100 of these spreads at the 90 strike instead of the 85 strike, but this spread did not do much better – I am hanging on to most of the contracts just in case it reverses direction over the next 6 weeks).

Another spread which I did not report to everyone (except my paying subscribers) was a vertical put credit spread, selling 85 puts and buying 75 puts in the same month.  I placed these trades for June, collecting a credit of $5.20, making my investment $480 per spread (this is the amount that would be my maximum loss if GMCR closes below $75 in June).  If the stock closes above $85 (which it looks highly likely to do), I will make 108% on my investment.  (I also sold similar vertical put credit spreads for both March and June at others strikes, and every spread appears that it will make 70% or better at expiration).

This time around, the calendar spreads didn’t fare well because the stock skyrocketed so high.  It is really necessary to guess where the stock will end up with that kind of spread.  I was too conservative in my bullishness. Who would have ever guessed that the stock would soar by 40%?  Certainly not me.  But I was happy that I also bought some other directional spreads that profited from the upward move (these spreads would have done just as well, or better, if the upward stock price move had been smaller).

An Interesting Calendar Spread Play

Wednesday, February 5th, 2014

Today after the close, one of my favorite stocks, Green Mountain Coffee Roasters (GMRC) , announces earnings.  I am taking quite a chance telling you about another option spread investment that I made this week because if the stock tanks after today’s announcement, I won’t be looking so good.The idea I am suggesting can be used for any stock you might have an opinion about, and it could easily double your money in about six weeks if you are approximately right about where the stock might be at that time.

Terry

An Interesting Calendar Spread Play

As you probably know, I love calendar spreads.  These spreads involve buying a longer-out option and selling a shorter-length option at the same strike price.  You only have to come up with the difference between the two option prices when you place the order.

When the short options expire, if the stock is very close to the strike price of your spread, you can expect to sell the spread for a great deal more than you paid for it.The further away from the strike price the stock is when the short options expire, the less valuable the original spread will be.

The trick is guessing where the stock might end up when the short options expire. This takes a little luck since no one really knows what any stock is likely to do in the short run.  But if it’s a stock you have followed closely, you might have an idea of where it is headed.

I happen to like GMCR.  I like knowing that insiders have bought millions of dollars worth of stock in the past few months and 30% of the stock has been sold short (a short squeeze could push the stock way up).  So I am guessing that the stock will be closer to $85 in six weeks compared to $80 where it closed yesterday (as I write this Wednesday morning it has moved up to about $81.50).

I bought a calendar spread on GMCR at the 85 strike, buying Apr-14 calls and selling Mar-14 calls.  I paid $.85 ($85) per spread for 10 spreads, shelling out $850 plus $25 in commissions.  Here is the risk profile graph for March 22 when the short options expire:

GMCR calendar risk profile graph feb 2014

GMCR calendar risk profile graph feb 2014

The graph shows that the stock can fall by as much as $5 and I will make a gain, or it can go up by more than $10 and I should expect a gain.  This seems to be a pretty large break-even range to me.  If I am lucky enough to see the stock end up near my $85 target, it is possible to triple my money in six weeks.

One nice thing about calendar spreads is that you can’t lose all of your investment.   No matter where the stock goes, the value of the April options will always be greater than the price of the March options at the same strike price.  When you are only risking $85 per spread, you can be quite wrong about where the stock ends up and still expect to make a gain.

 

A Post-Earnings Play on Starbucks

Monday, January 27th, 2014

I am a coffee lover, and not only am I adding to my Green Mountain Coffee Roasters (GMRC) spreads discussed last week, I am adding two new spreads this week in Starbucks (SBUX).  By betting on both these coffee companies, I end up not caring whether everyone is drinking coffee at home or at their favorite Starbucks café, just as long as they continue to enjoy the java.And as I sip away at my 4+ cup daily coffee allotment, I can feel I am helping my investments just a tiny little bit.  I will feel so righteous.  The coffee can only taste better.

Terry

A Post-Earnings Play on Starbucks

SBUX announced earnings last week, and they were pretty much in line with expectations.  The stock moved a little higher and then fell back a bit along with everything else on Friday.

The company is doing quite well.  Total sales rose almost 12%, same-store sales rose 5%, earnings were up 25%, and they were opening new stores at the rate of nearly 5 per day (417 for the quarter).

While all those numbers are impressive, the market seems a little concerned over the valuation.  It is selling at 28 times earnings (23 times forward earnings).  The stock has fallen nearly 10% from its high reached just after the last earnings announcement.

The stock has displayed a pattern of being fairly flat between announcement dates.  With that in mind, it might be a good idea to buy some calendar spreads, some at a strike price just above its current stock price ($74.39) and some at a lower strike.

I will be buying SBUX 10 Apr-14 – Mar-14 75 call calendar spreads (natural price $.60, or $625 including commissions) and 5 Apr-14 – Mar-14 72.5 put calendar spreads (natural price $.53, or $278 including commissions) for a total investment of $903.

Here is what the risk profile graph looks like for when the March options expire on the 21st:

SBUX risk profile graph

SBUX risk profile graph

If the stock stays flat, these spreads could just about double the investment in the 52 days I will have to wait.  My break-even range extends about $3 in either direction.  Any change less than $3 in either direction should result in a profit.

Since the stock has fallen so far from its high even though it seems to be doing very well, I don’t expect that any further weakness will be substantial.  On the other hand, the valuation continues to be relatively high so I don’t see it moving dramatically higher either.  It looks to me like a quiet period is the most likely scenario, and that is the ideal thing for a strategy of calendar spreads.

I will report back on the success of these spreads after the March expiration.  I like my chances here.

An Earnings Play on Green Mountain Coffee Roasters

Wednesday, January 22nd, 2014

Today I would like to tell you about an actual trade I made today in my personal account  as well as two Terry’s Tips portfolios.  The underlying is Green Mountain Coffee Roasters (GMCR) which is located in my home state of Vermont and is one of my favorite companies.This trade will make a nice gain if the stock stays flat or moves higher by any amount between now and 17 days from now, just after earnings are announced.

If the company disappoints in any way and the stock falls, I will have plenty of time to recover by selling new calls against my long positions over the next five months.

I believe this spread has an excellent chance of making a nice gain and there seems to be almost no chance that I will lose money on it even though it might take a little time to at least break even.

An Earnings Play on Green Mountain Coffee Roasters

GMCR announces earnings after the close on February 5, 2013.  The weekly options that expire a couple of days later, on February 7 are trading at extremely high valuations (implied volatility (IV) is 65).  I would like to sell some of that premium.

I am bullish on this company.  Two insider directors recently bought over a million dollars each of the stock (and they aren’t billionaires).  The company is buying back shares every quarter, so they must believe it is a good purchase.

One company wrote a Seeking Alpha article in which they picked GMCR as the absolute best company out of their database of over 7000 companies. Only a handful of other companies have met this criterion in the past, and on average, their stock has outperformed the S&P 500 by a factor of three. Check it out – Green Mountain Coffee Roasters: The Fundamental King.

I bought a diagonal call spread, buying GMCR Jun-14 70 calls and selling Feb1-14 80 calls.  The spread cost me $9.80 at a time when the stock was trading at just below $80.  If the stock moves higher, no matter how high it goes, this spread will be worth at least $10 plus the value of the time premium for the 70 call with about 5 months of remaining value, no matter how much IV might fall for the June options. The higher the stock might soar, the less I would make, but I expect I should make at least 20% on my money (if the stock moves a lot higher) in 17 days.

This is what the risk profile graph looked like at the end of the day today.  (In this portfolio, one of the 10 we conduct for Terry’s Tips subscribers to  follow), I bought 6 spreads which just under $6000.  Commissions were $15.  It shows the expected loss or gain on the investment on February 7th when the short calls expire:

gmcr risk profile graph jan 2014

gmcr risk profile graph jan 2014

If it stays flat I should make about 40% (the graph shows more, but IV for the June calls will most likely fall).  If it falls more than $5, I will be looking at a paper loss, but will still own 70 calls with 5 months of remaining life.  I should be able to sell weekly calls against these June 70 calls and recoup any paper losses that might come my way if the company disappoints on announcement day.

I believe this is a very safe bet that is highly unlikely to result in a loss, although I may have some money tied up for a while if the stock does tank after announcing.   But as usual, I hope that no one will take the risk with money that they can’t afford to lose.

 

 

 

 

Follow-Up on AAPL Earnings-Announcement Strategy

Wednesday, November 6th, 2013

Last week I told you about a spread I had placed on Apple (AAPL) just prior to their earnings announcement. I closed out that spread this week, and there was a learning experience that I would like to share with you.

Please continue reading down so you can see how you can come on board as a Terry’s Tips subscriber for no cost at all while enjoying all the benefits that thinkorswim incentive offers to anyone who opens an account with them.

Terry

Follow-Up on AAPL Earnings-Announcement Strategy: Last Monday, prior to AAPL’s earnings announcement, I bought a diagonal spread, buying Jan-14 470 calls and selling the weekly Nov1-13 525 while the stock was selling just about $525. I made this trade because I felt good about the company and believed the stock might move higher after the announcement. As it worked out, I was wrong.

I paid $62.67 for the Jan-14 470 call and sold the Nov1-13 525 call for $17.28, shelling out a net $45.39 ($4539) for each spread. (Commissions on this trade at thinkorswim were $2.50). The intrinsic value of this spread was $55 (the difference between 525 and 470) which means if the stock moved higher, no matter how high it went, it would always be worth a minimum of $55, or almost $10 above what I paid for it. Since the Jan-14 calls had almost three more months of remaining life than the Nov1-13 calls I sold, they would be worth more (probably at least $5 more) than the intrinsic value when I planned to sell them on Friday.

So I knew that no matter how much the stock were to move higher, I was guaranteed a gain on Friday. If the stock managed to stay right at $525 and the Nov-1 525 call expired worthless (or I had to buy it back for a minimal amount), I stood to gain the entire $17.28 I had collected less a little that the Jan-14 call might decay in four days.

In the after-hours trading after the announcement, the stock shot up to the $535 area and I was feeling pretty good because I knew I was assured of a profit if the stock moved higher. However, the next morning, it reversed direction and traded as low as $515. I wasn’t feeling so great then, although I still expected to make a profit (albeit a smaller one).

On Thursday, the stock rose to about $525, just where it was when I bought the spread on Monday. There was still $2.50 of time premium remaining in the Nov1-13 call which I had sold, so I was tempted to wait until it was due to expire the next day so I might pick up another $250 per spread when I sold it. However, I decided to sell it at that time.

I sold the spread for $56.25, gaining $10.86, or $1076 per spread which had cost me $4539 on Monday. That worked out to a 21% gain for the four days.  I was happy with that result.

On Friday, AAPL fell back to about $517 at the close. The spread that I had sold for $56.25 was trading at about $53. I still would have made a profit, but it would have been much lower than the one I took on Thursday.

The lesson here is that when the stock is trading very near the strike price of your short call when you have a spread like this (either a diagonal or a calendar spread), it is a good idea to sell it rather than waiting until expiration day of the short option. While you give up some of the potential gain if the stock were to remain absolutely flat, you risk doing worse if the stock were to move more than moderately in either direction.

It is better to sell your diagonal spread whenever the strike price of your short option is very close to the strike price rather than waiting until the last minute to try to squeeze out every penny of decay that might be there. In this case, I was wrong about the stock moving higher – it fell about $10 and I still made over 20% on my investment for a single week.

An AAPL Earnings-Announcement Strategy

Wednesday, October 30th, 2013

Today I would like to share with you an options investment I made yesterday, just prior to the Apple (AAPL) earnings announcement. While it is too late to make this same investment yourself, you might consider it three months from now when announcement time comes around again, or with another company that you feel good about.

Please continue reading down so you can see how you can come on board as a Terry’s Tips subscriber for no cost at all while enjoying all the benefits that thinkorswim incentive offers to anyone who opens an account with them.

Terry

 

An AAPL Earnings-Announcement Strategy: Approximately every 90 days, most public companies announce their latest quarterly earnings. Just before the announcement day, things get interesting with option prices. Since stocks often make big moves in either direction once earnings (and other numbers such as gross sales, margins, and future guidance) are announced, option prices get quite expensive, both for puts and for calls.

For people who like to collect high option premiums (i.e., selling expensive options to someone else), this pre-announcement period seems like a great opportunity provided I have a feeling one way or the other about the company. I had a good feeling about AAPL this month. I wasn’t sure what earnings might be (beware of anyone who says he is sure), but I thought the company was fairly priced, and I think the huge stash of cash they are sitting on provides some protection against a large drop in the stock price.

When a situation like this occurs (where I like a company and earnings are about to be announced), one of my favorite strategies is to buy a deep in-the-money call on the company, a call that has a few months of remaining life, and sell an at-the-money call in the shortest-term option series that expires after the announcement day.

On Monday morning, AAPL was trading about $525. I bought a diagonal spread, buying Jan-14 470 calls and selling Nov1-13 525 calls (AAPL has weekly options available, and the Nov1-13 calls would expire on Friday, November 1st , four days after the announcement after the close on Monday.

I paid $62.67 for the Jan-14 470 call and sold the Nov1-13 525 call for $17.28, shelling out a net $45.39 ($4539) for each spread. (Commissions on this trade at thinkorswim were $2.50). The intrinsic value of this spread was $55 (the difference between 525 and 470) which means if the stock moved higher, no matter how high it went, it would always be worth a minimum of $55, or almost $10 above what I paid for it. Since the Jan-14 calls had almost three more months of remaining life than the Nov1-13 calls I sold, they would be worth more (probably at least $5 more) than the intrinsic value when I planned to sell them on Friday.

So I knew that no matter how much the stock were to move higher, I was guaranteed a gain on Friday. If the stock managed to stay right at $525 and the Nov-1 525 call expired worthless (or I had to buy it back for a minimal amount), I stood to gain the entire $17.28 I had collected less a little that the Jan-14 call might decay in four days. A flat market would net me about a 36% gain on my investment, and any higher price for AAPL would result in at least a 25% gain.

After a company makes its announcement, all option prices tend to fall, especially in the shortest-term series that expires just after the announcement. However, deep in-the-money options like the one I bought derive most of their value from being so deep in the money, and they generally do not fall nearly as much as shorter-term, nearer-the-money options.

On the downside, the stock could fall at least $20 before I would incur a loss. Since the delta of the Jan-14 470 call was 80, if the stock fell $20, my long call might fall about $16 ($20 x .80). That would still be less than the $17.28 I collected from the 525 which would expire worthless so I would still make a gain.

Actually, as the stock falls in value, delta for an in-the-money call gets lower, and the Jan-14 call would fall by less than $16. The stock could probably go down at least $25 before I lost money with my original spread.

In the event that AAPL fell over $25 so I lost some money on the spread, since I like the company and it is now trading for only $500, I might want to hang onto my 470 call rather than selling it on Friday. I might sell another 525 (or other strike) call with a few weeks of remaining life, reducing my initial investment by that amount.

I like to make an investment that could make 25% or more in a single week if a company I like stays flat or goes higher by any amount after an announcement, and the stock can fall about 10% and I still make a gain. A more conservative investment would be to sell an in-the-money call rather than an at-the-money call. While the potential maximum gain would be less, you could handle a much greater drop in the stock value before you entered loss territory on the downside.

Barron’s Article Creates Great Buying Opportunity For Green Mountain Coffee Roasters

Monday, August 5th, 2013

This morning Green Mountain Coffee Roasters (GMCR) fell more than $2, apparently because of a negative article about the company published by Barron’s on Saturday.  I submitted an article to Seeking Alpha in which I argued that Barron’s had inappropriately used some statistics and made some faulty comparisons of GMCR’s p/e ratios and their competitors.

I’m not sure if my article really turned the market around, but in the first two hours after it was published, the stock went from being down $2 to being up $2.50, a swing of over $4.50  or well over 5%.

In this article I recommended buying a diagonal call spread which I will discuss today.

Read to the bottom of this letter to learn how you can become a Terry’s Tips Insider for absolutely no cost.

Terry

Barron’s Article Creates Great Buying Opportunity For Green Mountain Coffee Roasters

In this article I made a case that GMCR would move higher and that the Barron’s article had temporarily unfairly pushed the stock lower.   In a Terry’s Tips portfolio, we purchased the spread I recommended in the article for $10.93.  The natural price is now $12.15 so we have a paper profit of about 10% for the day.

I recommended making a fairly conservative options investment, buying Dec-13 well in-the-money calls at the 67.5 strike when the stock was trading about $78 and selling Aug2-13 weekly calls at the 77.5 strike.  I selected the Dec-13 series because implied volatility of those options (55) was lower than any other weekly or monthly series, and since the December expiration comes well after the next earnings announcement in late October or early November, IV is not likely to plummet after Wednesday’s announcement like the August, September, and October options will probably do.

IV of the Aug2-13 weeklies is a whopping 137, just the kind of options that we like to sell.

This diagonal spread should make an average of about 25% this week if the stock stays flat or goes up by any reasonable amount, and should only lose money if the stock falls by more than 7%.  This seems like a pretty good bet to me, and I have bought a large number of these spreads in my personal account.

How To Play The Seagate Technology Earnings Announcement This Week

Sunday, July 21st, 2013

The Google (GOOG) spreads I recommended last week resulted in average gains of 58% (after commissions) in Terry’s Tips actual portfolios.  Not a bad day.  The stock fell after the announcement just as we had guessed.

Read to the bottom of this letter to learn how you can become a Terry’s Tips Insider for absolutely no cost.

Terry

How To Play The Seagate Technology Earnings Announcement This Week

I have written a Seeking Alpha article explaining how I would play Seagate Technology (STX) this week:  How To Play The Seagate Technology Earnings Announcement This Week

There are many similarities between the situation in GOOG and Seagate.  I expect the stock to fall after the announcement, and have recommended to buy Aug-13 48 calls and sell Jul4-13 47.5 calls (a diagonal spread) which does best if the stock remains flat or falls.

Please read the entire Seeking Alpha article to get my full thoughts on the diagonal spread play and why I expect the stock will trade lower after the announcement.

A similar situation exists in Starbucks (SBUX) and I have recommended a less risky trade in that company – buying Aug-13 72.5 calls and selling Jul4-13 calls at a credit.  This spread will make money no matter how low SBUX might fall and only starts losing money if the stock moves about $2 higher.

Good luck if you do something this week in Seagate or Starbucks!

How to Play the Google Earnings Announcement This Week

Monday, July 15th, 2013

This week the earnings season starts in earnest. One of the most interesting companies reporting is Google, mostly because expectations seem to be sky-high and our Expectations Model predicts that there is a good chance the stock will fall after the announcement is made Wednesday after the market closes.

Read to the bottom of this letter to learn how you can become a Terry’s Tips Insider for absolutely no cost.

Terry

How to Play the Google Earnings Announcement This Week

I have written a Seeking Alpha article explaining how I would play Google this week:

How To Play The Google Earnings Announcement …

In the article I suggest buying a diagonal call spread with the long side in August at the 925 strike and the short side in the Jul-13 series at the 920 strike. I placed this spread in my own account today for a debit of $3.60 (in addition to the $500 maintenance requirement per spread, the total cost is about $860 per spread).

This spread should make a gain if the stock goes up by less than $30 (my article explains why I don’t think it will go up at all) or if it falls by less than about $50 (I think this is a possibility but a remote one).

Another possible spread would be to use the same strikes but buy Jul4-13 weeklies instead of the August series. You could do this for a credit of about $.90 which would lower you total investment to about $420 per spread after commissions (the $500 maintenance requirement less the amount of the credit). This spread would make a gain no matter how far the stock might fall (even if it fell to zero) but would start losing money once it rose by about $20 (again, an unlikely event in my opinion).

Another interesting spread would be to pick the strike price (or maybe more than one) where you think the stock might end up on Friday, and buy a Jul4-13 – Jul-13 calendar spread at that strike. It should cost you only about $200 per spread. You can’t lose more than that amount on the trade, and if the stock does end up very near the strike you picked, the spread might be worth $1000 or so. The entire $200 should not really be at risk because your Jul4-13 call should always be worth more than the Jul-13 call, although if the stock ends up at a big distance away from the strike you picked, it might be difficult to get the entire $200 back.

Please read the entire Seeking Alpha article to get my full thoughts on the diagonal spread play and why I expect the stock will trade lower after the announcement.

Good luck if you do something this week in Google!

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