1 / 27

Speed Retirement

Speed Retirement. Wednesday August 24, 2011 Straddle Trade Actual Example. Background. A member had emailed me an asked me about A few potential “earnings straddle” trades. He asked my opinion about HIBB, DLTR, GME, GSP, HPQ, SKS, WMT. I told him I liked these deals:

buffy
Download Presentation

Speed Retirement

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Speed Retirement Wednesday August 24, 2011 Straddle Trade Actual Example

  2. Background A member had emailed me an asked me about A few potential “earnings straddle” trades. He asked my opinion about HIBB, DLTR, GME, GSP, HPQ, SKS, WMT. I told him I liked these deals: DLTR, HIBB, GME and HPQ

  3. He chose to tradeGME on theearnings straddle.

  4. GME reportedearnings onThursday August 18, 2011at 10:39 am-EST.Option expiration wasFriday August 19, 2011.GME closed on ThursdayAugust 17 at $20.46.

  5. Trades made on GME:Bought 3 Aug $21 Calls @ $.65Bought 3 Aug $21 Puts @ $1.25Total cost for Straddle - $1.90(Note: Before Commissions)Total cost about $600.

  6. 8/19/11 – He soldthe Aug $21 Callsfor $.56.The puts expired.

  7. Straddle Cost - $1.90Straddle Sold – .56Net loss = $1.34or Cash loss of about$402, before Commissions.

  8. Let’s look at the charts …

  9. Couple of comments …The member who placedthis trade, admitted he wasnot at his computer whenGME gapped downin the morning.

  10. So, the first rule when putting onthese trades has to be thatyou are assessable when theyrelease their earnings.GME happened to releaseduring the trading day. A lotof times companies release eitherbefore or after the market close.

  11. If a company releases earningsduring non market hours, youneed to see the 1st 60 minute bar.

  12. By looking at the 1st 60 minuteBar, the puts could have beenclosed out and sold for probablyabout $1.60 to $1.75. If you held the calls, your first objectivewas back to fill the gap. Then thenext target was the 200 ema.

  13. You want to try and sell the optionsin the morning on the day ofexpiration. Remember, after12:00 –noon on the Friday ofexpiration, the time premiummelts rapidly.

  14. Actually, GME cooperated nicelyon expiration Friday becauseit spiked up to the 200 emaon the day of expiration to a highof $22.93. Those calls were probably worth about $1.90at that time.

  15. I think the member closed thecalls at the close and theywere closed for $.56. So, ifthey were closed in the 1st hour,they had to be worth aboutat least $1.50.

  16. The point is this …even if you missed closingout the puts on the down gap,and held the whole position, thecalls could have been sold inthe morning of expiration forabout $1.50 or maybe more.The loss would have only beenabout $.40. Remember, hepaid $1.90 for the straddle.

  17. By micro managing the position,the straddle could have beensold for about $3.00 or more.Sometimes these deals haveto be traded for maximumpotential.

  18. In order to maximize andsqueeze the most profitfrom these deals, youreally do need to micromanage the positions.Look at WLT ….

  19. Before we look at WLT,there is one more conceptto mention. GME closed at$20.46 the day beforeearnings. Another strategymay have to bought aStrangle. Instead of buying the$21 calls and puts, you couldhave bought the $21 call and the $20put. Most likely, the cash outlaywould have been about $1.20, insteadof $1.90.

  20. Let’s look atthe deals thatwere available …HIBB, DLTR, HPQ

  21. I want to thank Wfor letting me sharehis results withall the members.

More Related