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Posts Tagged ‘ANF’

Wow – It’s Now 10 Consecutive Profitable Earnings Plays Without a Loss

Tuesday, May 28th, 2013

Another week has gone by and we invested in two more PEA (Pre-Earnings Announcement) Plays using the Expectation Model I have been talking about for the past couple of months.

You would have had to read about these two trades in Seeking Alpha articles I wrote (sign up as a follower and you will be notified whenever I write one of these articles).  Here they are if you want to check them out – How To Play The Salesforce.com Earnings Announcement and How To Play The Abercrombie & Fitch May Earnings Announcement.

The option spreads we placed in both Salesforce.com and Abercrombie made gains, and extended our winning streak to ten consecutive plays without a single loss.  Today I would like to explain how we did it, and offer two more PEA Plays for this week.

If you read down further, there is information on how you can become a Terry’s Tips Insider absolutely free!

Terry

Wow – It’s Now 10 Consecutive Profitable Earnings Plays Without a Loss

First, here is a link to the exact trades we made on the above two companies to extend our string from 8 to 10 consecutive winners – update.

This week’s trades have been submitted to Seeking Alpha – How To Play The Costco Earnings Announcement and How To Play Joy Global’s Earnings Announcement.

If you are interested in trying either of these plays, you need to hurry.  The trades must be placed before the market close tomorrow, Wednesday, May 29th.

I am eager to see the results on Friday, hopefully with two additional plays added to our winning streak.

Next week, sadly, there are no companies with weekly options that are reporting, so we will have to move on to other strategies for one week.

Updates on ANF and CRM PEA Plays

Friday, May 24th, 2013

Updates on ANF and CRM PEA Plays

Here are the trades we placed for ANF this week:

May 21, 2013  Trade AlertPEA Picker  Portfolio – LIMIT ORDERS

I wrote a Seeking Alpha article about this trade if you care to see it – How To Play The Abercrombie & Fitch May Earni…  In the article I suggested buying June options for the long side but have since noticed that the July options offer more value and have a 6-point lower IV than the June options.  I have also expanded the break-even range to about 15% on the downside and 8% on the upside at the cost of making a very small gain if the stock falls by just a couple of dollars.  I have assumed that IV of the July options will fall by 8 (from 48 to 38).  These trades are being made with ANF trading about $54.25.

BTO 6 ANF Jul-13 52.5 calls (ANF130720C52.5)
BTO 6 ANF Jul-13 52.5 puts (ANF130720P52.5) for a debit limit of $7.25  (buying a straddle)

If that executes:

STO 3 ANF May4-13 48 put (ANF130524P48)
STO 3 ANF May4-13 56 call (ANF130524C56) for a credit limit of $2.11  (selling a strangle)

STO 3 ANF May4-13 49 put (ANF130524P49)
STO 3 ANF May4-13 57 call (ANF130524C57) for a credit limit of $1.93  (selling a strangle)

May 23, 2013  Trade AlertPEA Picker  Portfolio

We have a weak spot in the risk profile graph curve and this little trade will fix it:

BTO 2 ANF Jul-13 52.5 puts (ANF130720P52.5)
STO 2 ANF May4-13 52.5 puts (ANF130524P52.5) for a debit of $1.37  (buying a calendar)

When the announcement was made, the stock fell sharply by about $5.50, or about 10% below it was when we placed our spreads.

Both of the strangles that we sold on the first day essentially expired worthless (we bought back the expiring short options for a minimal price (paying no commission on them at thinkorswim).  Those strangles served to reduce the cost of the original straddle we bought from $7.25 to about $5.25.  When we sold that straddle for $5.72, we made a gain of about $240 after commissions on an initial investment of $3150, or 7.6%.

A significant factor in the disappointing gain was that IV fell to 34 compared to the 38 I was expecting.  This meant we got lower prices than we hoped for when we sold the July options.

It wasn’t a great gain, but it did manage to continue our winning streak of these PEA Plays using our Expectation Model from 8 consecutive wins to 9.

And our second PEA Play this week: SalesForce.com (CRM)

This was an interesting challenge because our Expectation Model predicted that since expectations were so high, a lower price would come about after the announcement.  This prediction was countered by the strong record of the stock moving higher after announcing, even when earnings did not best estimates.  Over the last four quarters the stock had moved higher an average of 6.7% after announcing, so we were a little scared to place all our money on a weaker market. 

May 21, 2013  Trade AlertPEA Picker  Portfolio – LIMIT ORDERS

I wrote a Seeking Alpha article about this play if you are interested – How To Play The Salesforce.com Earnings Annou…

In this article I suggested buying June options for the long side but I have since noticed that the July options are less than $.50 more expensive and seem to have tighter bid-ask ranges.  These spreads should make a gain in either direction as long as the stock fluctuates less than 10% in either direction after the announcement, assuming that IV of the July options will only fall by 8 (from 36 to 28):

BTO 8 CRM Jul-13 50 puts (CRM130720P50)
STO 8 CRM May4-13 47.5 puts (CRM130524P47.5) for a debit limit of $2.47  (buying a diagonal)

BTO 5 CRM Jul-13 50 calls (CRM130720C50)
STO 5 CRM May4-13 50 calls (CRM130524C50) for a debit limit of $.76  (buying a calendar) 

May 23, 2013  Trade AlertPEA Picker  Portfolio

When we placed our trades near the open on Tuesday, the stock was trading about $2 higher than it is now.  In order to continue have a break-even range that extends about 10% in both directions, we need to establish some downside protection.  Fortunately, we can take off some of our diagonal spreads for a gain, and use the proceeds to add some calendar spreads at lower strike prices:

BTC 3 CRM May4-13 47.5 puts (CRM130524P47.5)
STC 3 CRM Jul-13 50 puts (CRM130720P50) for a credit of $2.62  (selling a diagonal)

BTO 3 CRM Jul-13 44 puts (CRM130720P44)
STO 3 CRM May4-13 44 puts (CRM130524P44) for a debit of $.98  (buying a calendar)

BTO 3 CRM Jul-13 42 puts (CRM130720P42)
STO 3 CRM May4-13 42 puts (CRM130524P42) for a debit of $.85  (buying a calendar)

BTO 3 CRM Jul-13 40 puts (CRM130720P40)
STO 3 CRM May4-13 40 puts (CRM130524P40) for a debit of $.64  (buying a calendar

After the announcement (when the company pretty much exceeded estimates, the stock fell a whopping $5.50, or about 10%.  In this instance our Expectations Model seemed to be a much better predictive value than the historical pattern of price changes after announcing.

The original diagonal spread we bought for $2.47 was sold for $2.65 (its intrinsic value was $2.50 and there was some remaining time premium value in the July 50 puts).  We lost on our the call calendar we placed just in case the stock moved higher (selling it for $.29 vs. our cost of $.76).  However, we gained on all three put calendar spreads, selling them for $1.32, $1.61, and $1.12.

In total, we had invested $2301 plus commissions of $52 after selling 3 of the diagonals for a small gain.  We had a gain of $371 less commissions of $41 for a net gain of $330 or 14% for the week.

IV of the July options fell much further than we expected, all the way to 30 compared to our estimate of 40, so even a 14% could have been much greater if the 60-day-out options had behaved as they did a quarter ago after earnings.

These were two of our lowest-netting PEA Plays but they did keep the string of successful trades going.  The portfolio that started out 7 weeks ago with $5000 has now had $6000 withdrawn from it and there is $5277 remaining in cash. 

We expect to invest only half our cash next week in a Joy Global (JOY) PEA Play.  JOY is the only company with weekly options that is reporting next week.

 

 

More Pre-Earnings-Announcement Plays

Tuesday, February 26th, 2013

Last week I gave you an option play on Tesla Motors (TSLA) to be placed just before they announced earnings.  Since there were no weekly options available, the March series was sold.  By the end of the week, a small gain had been made in the portfolio but the real gains will not come until the March options expire on the 16th. 

 

Today I would like to tell you about two other pre-earnings-announcement (PEA) plays that Terry’s Tips subscribers carried out last week. 

 

More Pre-Earnings-Announcement Plays 

 

Herbalife (HLF) PEA Play:  In the Terry’s Trades portfolio when HLF was trading about $40 we bought 6 Jun-13 – Feb4-13 call calendar spreads at the 39 strike, paying $2.25 per spread. We paid the same for 6 more calendars at the 41 strike.  In retrospect, these strikes were too close to the stock price and did not offer a wide break-even range.  Since most big moves are to the downside, a better strike would have been 38 or even 37 instead of the 39. 

 

Our total investment was $2700.  After the announcement the stock fell 7.5% to $37, putting it outside the range of our strike prices.   We bought back the Feb4-13 41 calls for $.05, paying no commission, and sold the Jun-13 41 calls for $2.25, losing a total of $30 on the spread before commissions.  On Friday we sold the 39 calendar spread for $2.80, gaining $55 x 6 = $330, or a net of $300 for the two spreads.  Commissions amounted to $52.50, so our net gain was $247.50, or 9.2% on our investment. 

 

We felt that this was not a bad gain considering that we didn’t make the ideal choices of strike prices and the stock fell by a relatively large amount.  If we had bought the 38 strike rather than the 39 strike, our gain would have been $150 greater, or almost 15% total for the week. 

 

Abercrombie & Fitch (ANF) PEA Play: In the Earnings Eagle portfolio, on Thursday, the day before the pre-market announcement on Friday, with ANF trading about $49 we bought 15 Apr-13 – Feb4-13 call calendar spreads at the 48 strike, paying $1.28 per spread. We paid $1.30 for 15 more calendars (using puts) at the 44 strike and $1.35 for 15 diagonals, buying calls at the 52.5 strike (the 53 strike was not available in April) and selling Feb4-13 calls at the 53 strike.  

 

Our total investment was $5859.  After the announcement the stock fell over 7% to $45.50, but remaining within the range of our strike prices.   We bought back the Feb4-13 53 calls for $.03 and the Feb4-13 44 puts for $.05, paying no commission, and sold Apr-13 44 puts and 52.5 calls as a straddle, collecting $2.55, losing a total of $270 on the two spreads before commissions.  We sold the 48 call calendar spread for $1.97, gaining $69 x 15 = $1035, or a net of $765 for the three spreads.  Commissions amounted to $187.50, so our net gain was $577.50, or 9.8% on our investment.

 

We have developed a set of Trading Rules for PEA Plays for Terry’s Tips paying subscribers.  They might be worth many times what a subscription would cost.

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