July 31 weekly Options expiration

I have 7 existing positions that include Options expiring today. Here’s the plan:

Caterpillar $CAT  I am long the 85/82.5 Put Ratio. I am short stock at $82.5 (hedge). I will let this trade auto-unwind for +2.50 (thus closing this Submarine Basket position). The Options Net final will be: $4.91

priceline.com $PCLN  I own the July 31w/Sep 1160/1230 Diagonal Call Calendar with short weekly $1140 Puts. I will take stock at $1160 with short September $1230 Calls (covered calls). The short weekly $1140 Puts will go poof. Options Net remains: $8.70 and booked stock gain remains: $4.22

Skyworks Solutions $SWKS  I am short the 110/115 Call Spread – which I will let expire. Options Net final: $10.51 and booked stock gain: $2.27

Financial Select Sector SPDR $XLF  I am long the ETF at $25.30 with short weekly $25.5 Calls (covered calls). Current Options Net: $.59. I will adjust to a future expiry

Earnings:

Baidu $BIDU  I am long the 200/210/220 Call Fly and short the $180 Puts. I will adjust the short Puts to a future expiry. The long Call Fly goes poof. Current Options Net: $.69 and booked stock gain: $11.33 (from the hedge)

United Parcel $UPS  I am long the 95/98/100 Call Fly and short the $93 Puts. I will: take stock at $95, adjust the middle of the Call Fly to a future expiry, StC the long weekly $100 Calls. Current Options Net: $.68 and booked stock gain: $1.47 (from the hedge)

LinkedIn $LNKD I am long the 230/240/250 Call Fly and short the $190 Puts. I think this whole trade goes poof today. Options Net: $.79 and booked stock gain: $36.225 (from tag along short in after hours 7/30)

 

– DM 9:00 AM CST

 

May 22 weekly OpEx

I have several existing trades with May 22 weekly options as part of the trade. Here is the plan:

$CRM  I own the July 75/82.5/67.5 RRCS. I am long May 22w $67.5 Puts (these will go poof). Options Net: -$1.50 and booked stock gains of $9.45

$WDC  I am long stock at $92 with a 99/98/92 Collar Put Ratio. I will let the long $98 Puts exercise and unwind the stock for +6.00. Final tally: Options Net: $2.12 and a stock gain of $6.00

$Z  I am long stock at $82.96 with a $97 Collar. I will let the long $97 Puts exercise and unwind the stock for +14.04. Final tally: Options Net: -$.78 and a stock gain of $14.04

$XLF  I own the July/May 22w $25 Call Calendar. I will adjust the short Calls to June 05w $25 Calls & take in a bit more premium. Options Net: -$.31

$AXP  I own the 78.5/80/76 RRCS. I will take stock at $78 & adjust the short $80 Calls to a future expiry on 5/22. The short $76 Puts will go poof. Options Net: $.57

$CAT  I am long stock at $85 with a 88/87/84 Collar Put Spread. I will adjust the CPS to a future expiry. Options Net: $.18

$CTRP  I am long the May 29w $65 Straddle & short the May 22w $65 Puts (these should go poof today). I am also short the September $80 Calls. Options Net: -$.64

$HD  I am short the 116/118 CS & $109 Puts. All these pieces should go poof. Options Net final: $2.03 & stock gain: $.93

$NTAP  I am short the 32/31 Strangle & long stock at $31.50. My current plan is to short a Strangle in a future expiry & take in more premium. Options Net: $.73

Positions for clients left to tend to:  $XLV $GILD $V $WFC

 

– DM 8:35 AM CST

 

Adjusting an existing trade to prepare for an Earnings Report

A much-anticipated earnings CATreport on Monday from $CAT is the subject of this post. I have a position in the Fab 5 basket of stocks for $CAT (purpose is for the $100 Roll trade) and wanted to illustrate one way to make an adjustment so that the Risk to a trade is managed properly. In addition, I will show how an adjustment for many different reactions can be taken into account and structured for. Here are the details to the initial trade:

  • I am Long the February 95 Call
  • I am Short the February 100 Call (thus the 2 pieces make a Call Spread)
  • I am Short the February 87.5 Put (premium collected to help lessen the cost of the above Call Spread)
  • This is considered a Risk Reversal trade

On Friday I began to evaluate the trade by changing the lens on my view, adjusting my perspective based on recent information that was putting pressure on price. Based on this information and what I saw being reflected in the chart, as well as my plan to protect against any significant downside risk, I elected to make the following adjustments:

CAT_earningsLet me break it down:

  • I bought back the short 100 February Call and sold the February 1 weekly 95 Call. This converts from a Call Spread to a Call Calendar.
  • I bought the February 1 weekly 87.5 Put to protect the short one I have in the February monthly chain. This creates a Put Calendar, but one I am short.

A few scenarios that can occur, and how I would work the trade accordingly:

1) The stock moves down after the report and hangs out near the 87.5 strike Put. I will be glad I own Puts for next week and will deal with accordingly. In this scenario it is likely the short 95 Call can be bought back on the cheap, thus collecting the bulk of premium from the sale. Ideally from here, the play is for a price recovery back up to Friday prices to get value from the long February monthly 95 Call. If this occurs, the plan would be to create a Call Spread again to lower the cost further for the Long 95 Call.

2) The stock moves down after report into the Gap Fill area (92.95 to 89.80). In this scenario it is likely the short 95 Call can be bought back on the cheap, thus collecting the bulk of premium from the sale. Ideally from here, the play is for a price recovery back up to Friday prices to get value from the long February monthly 95 Call. I would manage the Put Call side as appropriate, can wait until Friday if desired.

3) The stock stays in current price area (97.73 to 94.66). In this scenario it is less likely the short 95 Call can be bought back cheaply – near premium collected or lower is ideal if given the opportunity. Ideally from here, the play is for a minor dip and then price recovery back up to (and above) Friday prices to get real value from the long February monthly 95 Call. Manage the Put Call side as appropriate, can wait until Friday if desired but would imagine can take these 2 pieces off and keep a good portion of the premium.

For those that are more visual, let me add a graphic that shows the plan and how it could play out in these scenarios:

CAT_scenarios