Closing Out the Buffalo Wild Wings (BWLD) Spreads
If you recall, on Monday I recommended buying the following two spreads while BWLD was trading about $77 in advance of Tuesday’s earnings announcement after the close:
BTO (buy to open) 6 BWLD Jun-13 85 calls (BWLD130622C85)
STO (sell to open) 6 BWLD Feb-13 80 calls (BWLD130216C80) for a debit of $1.40 (buying a diagonal)
BTO (buy to open) 4 BWLD Jun-13 70 puts (BWLD130622P70)
STO (sell to open) 4 BWLD Feb-13 75 puts (BWLD130216P75) for a debit of $.90 (buying a diagonal)
In my personal account, after sending out this recommendation, just to make sure these prices were still available, I bought the above spreads. I paid $1.39 for the call spread and $1.35 for the put spread.
These two spreads cost $1374 plus $25 in commissions for a total cost of $1399. There was a $3000 maintenance requirement charged by the broker, although I figured that the actual amount at risk was no more than half that amount because the long puts and calls both had five months of remaining life and would have value (the broker assumes that you don’t sell them as soon as you can and just let them expire worthless).
So to my way of thinking, I risked about $2900 on these spreads although I had to leave an additional $1500 in my account alone for what worked out to be a single day.
On Wednesday after the announcement the stock had hardly changed from what it was at the open on Monday, $77, although it had move about $4 higher late Tuesday and opened about $4 lower on Wednesday.
At about 10:30 a.m. I sold the call spread for $2.51 and the put spread for $2.42, collecting $3274 less $25 commissions, or $3249. That gave me a cash profit of $1850 on my adjusted $2900 at risk. That works out to a 63% gain for the trades.
I would have made just about the same gain if the stock ended up at any price between $75 and $80. If I had waited until Friday to close out the spreads, I would have made more if it fell in that range, but I will take a 63% profit for a couple of days any time.
This is the third similar trade I have made with pre-earnings announcement companies in the last three weeks, and all three trades have had similar profitable results.
Tags: Buffalo Wild Wings, BWLD, Calendar Spreads, diagonal spreads, Earnings Option Strategy, implied volatility, Portfolio, Profit, profits, Risk, Terry's Tips, thinkorswim, Volatility, Weekly Options