Earnings Trades update

Prior update can be found here

None of the newly added trades this week survived to the weekend. Exits this week (existing and newly added):

Here are the 5 existing that survive:

Netflix $NFLX  I am Long the April 02w 470/440/420 1×2 Split Put Ratio. I am Short stock at $440. No change this week

Google $GOOGL  I am Long stock at $525 (as of 3/6, let L Calls exercise) and Short the Sep $550 Calls (covered calls). No change this week

Centene $CNC  I am Long stock at $56 (2x size) and Short the September $67.5 Calls (covered calls, 2x size). Activity this week

Twitter $TWTR  I am Long stock at $41.99 with Short June $45 Calls (covered calls). No change this week

Cooper Companies $COO  I am Long stock at $175 and Short the April $180 Calls (covered calls). Activity this week


- DM 8:55 AM CST


Position Updates

My primary focus this week was in tending to existing positions that had March Options as part of the trade (Monthly OpEx this week). No new positions in the Swing, Long-term, or IRA accounts. No new positions in the Submarine Basket or 50/50 Basket.

Several Earnings trades were closed, I am left with: $NFLX $GOOGL $CNC $TWTR $COO

Submarine Basket:  $AXP $BBBY $BWA $EXPE $PNRA $RENT $WYNN $KR (not an official position since 8/18/2014 but trade is still on, still trending)

Here is the Summary:


- DM 8:35 AM CST


Cooper Companies – a trade update

I initiated an Earnings trade in $COO on 3/5/2015 (prior update can be viewed here):

  • Long the March 170/175/180 Call Fly
  • Short the March $155 Puts
  • This was done for a $.35 credit

One of the potential steps that exist in every trade is hedging with stock. In the case of $COO I had set a Buy Stop at $175 (middle of the Fly) as a hedge for the Top of the Fly (a short 175/180 call spread to keep it simple). The Bottom of the Fly is long 170/175 call spread.

The Buy Stop did trigger and the stock has continued to run up to the $185 level where it is consolidating. So now what?

In this scenario, I take the simple approach and do the following:

  • The Call Fly will go poof 3/20 for no gain
  • The Short Puts go poof on 3/20
  • I am left with a $.35 credit & Long stock at $175
  • Now I do this: StO April $180 Calls for a $8.70 credit on 3/17 to create a basic Covered Call trade


- DM 10:30 AM CST


An update to the trade in Williams-Sonoma for Earnings

I thought I would use the Earnings trade in $WSM as an example of how a trade can evolve as the market does. Here are the specifics for the initial trade I did early in the day on 3/18 for Earnings:

  • Long the March 82.5/85 Call Spread
  • Short the March 90/75 Strangle
  • This trade takes margin
  • Was done for a $.14 credit
  • The March $82.50 Straddle was pricing in a $5.50 move for Earnings

As the day wore on Thursday, the stock was weakening so I elected to StC the Long CS portion of the trade. This improved my Options Net to $1.41 but also meant that I had no directional bet any longer. I was left with a Short March 90/75 Strangle into the Earnings report.

The stock did react negatively in after hours on 3/18 to the guidance provided by the company (also a note RE: the West Coast port slowdown and how it will impact future Earnings).

So how does my trade look now? Price is currently trading near the $78.50 level so it has avoided my lower Short Put strike for now. As is always the case: it is about managing Risk so it is my job to know when to hedge with stock (if need be) or unwind the Short Puts as another potential step.


StC = Sell to Close

- DM 8:30 AM CST


Options versus using a Stop

I have been in an email exchange this week with a client prospect where a very important question came up in our discussions:  what is my Risk Reward approach for those that are very focused on keeping positions “safe”.

This once again brings up the debate on Options versus using a Stop so I decided to provide an example to the prospect on what I would do with a particular trade. Here are the details:

One of the Tools that I use is Options. This tool provides several important benefits in trading stocks including protecting a position fully (beyond what a traditional Stop can do). As an example for the prospect, I enclosed this Trade setup to show how I would do a trade to meet their goal of safe – within a 6-month time-frame:

Ticker:   VHT  (Vanguard Healthcare ETF)

Current price:  $135.5
Account Size:   $250,000
Position Size:   $50,000
# of shares:   369
Amount to Risk:   $2,500
50 SMA:   $130.77

Stop:  $128.73

Long Puts expiration:    September 2015
Long Put strike:   $135
Long Put cost:   $6.00   (600 per contract x 4 contracts = $2,400). You would be fully protected under the $135 level until September with a similar “Amount to Risk” as the Stop info above

Scenario:  Price moves above the $140 level between now and September I would  then sell Calls against the Long stock to recoup the cost of the Puts. I would expect to have several opportunities before September to sell Call premium – say at the $140 or $145 level – to slowly recoup the cost

Daily chart on $VHT:


- DM 12:25 PM CST


Trading Activity

Fleetmatics $FLTX  The Stop hit on the Long stock piece at $43.80 so just the Diagonal Call Calendar CS remains

Skyworks Solutions $SWKS  I adjusted the Diagonal Collar further out to a Diagonal Collar Put Ratio for a .11 debit

Ulta Salons $ULTA  I lowered the Buy Stop from $153 to $151.50 (would be a hedge for the S Mar 150/130 Strangle)

Netflix $NFLX  I set a Stop on the Short stock piece at $440 (hedge for the Put Ratio)

Wynn Resorts $WYNN  I lowered the Stop on the short stock piece from $130 to $126.40 (hod on 3/16)


- DM 9:55 AM CST