Option Idea Which Must Be Executed Before Market Closes November 1st
I am sorry to send you a second email message today, but I need to hurry because it will disappear tomorrow. It involves Gilead Sciences (GILD)
Gilead (GILD) announces earnings on Tuesday, November 1st after the close. The post-announcement options are extremely expensive. Implied Volatility (IV) for the 04Nov16 series is 60 compared to 34 for the 16Dec16 series which expires six weeks later. The company has fallen 32% from its 52-week high and pays a dividend of 2.5% and has a p/e of only 6.4 which should provide some level of support. Expectations are for lower sales and earnings. These facts support the idea that a big drop in stock price is unlikely after the announcement. This trade will make money if the stock is flat or goes up by any amount (a maintenance requirement of $400 per spread, less the amount of the credit, will result):
Buy To Open 1 GILD 16Dec16 70 put (GILD161216P70)
Sell To Open 1 GILD 04Nov16 74 put (GILD161104P74) for a credit of $.25 (buying a diagonal)
We bought 5 contracts of exact spread today in our portfolio that trades on earnings announcements. It will make a maximum gain if the stock closes on Friday exactly at $74. Any price higher than that will also result in a profit. The stock should be able to fall about $2 before any loss should appear on the downside. . . .