An existing position in Delta – a look at how to take it into Earnings

I have had a long stock position in $DAL since 9/9/2013. Delta will report earnings BMO (before market open) 1/21 so it is important to have a plan on how to protect the current gains.

For that I have a January 24 weekly $29 Collar. If you are not familiar with this, here is a breakdown:

  • I am short the January 24 weekly $29 Calls (covered by long stock)
  • I am long the January 24 weekly $29 Puts (the protection piece)
  • I have an Options Net of -$3.69 (means my overall gain is down near $25)

Here are a few scenarios to show how a Collar will work on a post-earnings price move:

1) Price goes to $32. The long stock remains capped by the short weekly $29 Calls. I would need to adjust by Friday to an expiration further out or the stock would get called away

2) Price goes to $30. The short Calls would still be ITM (in the money) so I would adjust to a new Collar in an expiration further out. The long weekly $29 Puts would have no value

3) Price goes to $28. The Put would be ITM so the Collar protection comes into play. If price holds, I would sell the Puts on Friday and add a new Collar in an expiration further out. The Short $29 Calls would go poof

 

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