Update on SanDisk (SNDK) Earnings-Related Option Play
Last week in a Seeking Alpha article – How To Play The First Week Of The April Earnings Season I showed how SNDK had excessive expectations going into its earnings announcement (whisper numbers exceeded analyst expectations by 18.7%, the stock had soared over the last week and month, and implied volatility of Weekly options was 50% higher than IV of the May options.
With the stock trading at $57.50, I recommended buying May-13 57.5 puts and selling Apr-13 55 puts. The natural price for this spread at Friday’s close was $1.63. Shortly after the open on Monday in an actual portfolio conducted at Terry’s Tips, we were able to buy this spread for $1.61 in our Earnings Expectation portfolio. We bought 15 spreads, shelling out $2452.50 including commissions.
The announcement exceeded earnings expectations and revenue grew 14%, but the excessive expectations drove the stock down to about $55 at the open on Thursday. We closed out our spread shortly after the open, collecting $2.77 per spread, or $4117.50 after commissions. Our gain for the trade amounted to $1665, or 68%.
It was a good week.