How I protected a long position through earnings in O’Reilly Automotive

One of the challenges during earnings season is being long (or short) a stock and planning to hold it through an earnings report. This week has been a very active week for several current positions and thus I have had to make decisions on my plan for each held position.

In the case of Fab 5 member $ORLY I elected to do the following to provide some protection for the long position:

A few other choices were:

  • Sell the stock and do an Options only trade
  • Sell the stock and do nothing else
  • Buy a Put to pair up with the long stock position
  • Sell the $100 Call and Buy the $90 Put (Collar)

For my chosen path, as noted in the message above, here is the breakdown of how what range of protection it provides:

  • If the stock moves up after the event (which it has), and the stock is called away at $95 by the Call owner, then my gain is the difference between the entry and $95 plus the premium collected by selling the Call ($3.21) for a net price of $98.21 per share.
  • On any downside move, as long as price stays above the initial entry-level the overall trade remains profitable. The selling of the $95 Call does help soften any fade down to the $91.79 level.

Due to the strength of the earnings report reaction, I bought back the $95 Call at the open for $6.5 to uncover the long position. So far this $100 Roll day looks very strong. I am now going to put on a Collar using the May $105 strike for the Call (short) and the $100 strike for the Put (long) for a net credit of .73c

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