I received a lot of questions and inquiries on my current $LZB earnings trade so I thought I would put my thoughts together in a post. I normally follow this stock and had noted in my Estimize post that I had noted some weak Furniture sales data in a recent consumer report. However, the chart looked strong into earnings and the Option flow looked positive as well so I wanted to be Bullish but have a nice cushion if wrong.
With that said, I did the following trade:
- Long stock at 19.68
- Short the July 20 Straddle (1/2 position) for 2.50 credit
Here is a breakdown:
- I am long stock
- I am short the July 20 Call & Put but just a 1/2 position. This means I am capping my gain at 22.50 on 1/2 of the stock piece, but am vulnerable to price staying under the $20 level for a 1/2 position based on the short Put piece. The $2.50 cushion is nice but this requires focus on the post-reaction move, in this case after hours trading
Here is how it unfolded:
I got a nice pop after hours once the report was released but it stalled quickly so I sold the stock – increasing my cushion. As the stock continued to weaken, I elected to go ahead and short any move under that $20 level. I held this short overnight as noted.
Currently price is near the 19.35 level so the short stock piece is hedging the Short 20 Put nicely. Now the trade is in maintenance mode as I work it to keep as much of that cushion as possible.