Trading Earnings Announcements

[Deaddog]

How do the traders here handle earnings announcements?

Earnings announcement can move a stock dramatically, both to the upside and the downside.

Specifically I’m looking at SIMO & SPG which announce at the end of this week.
SIMO missed in July and beat in Nov. It’s a crap shoot.
SPG seems to have beat by a few cents.

Do you gamble and hold thru the announcement or do you close all or part of your position to protect your capital?

Is there anything in the charts that might give a hint of how the announcement might go?

[skiracer]

How do the traders here handle earnings announcements?

Earnings announcement can move a stock dramatically, both to the upside and the downside.

Specifically I’m looking at SIMO & SPG which announce at the end of this week.
SIMO missed in July and beat in Nov. It’s a crap shoot.
SPG seems to have beat by a few cents.

Do you gamble and hold thru the announcement or do you close all or part of your position to protect your capital?

Is there anything in the charts that might give a hint of how the announcement might go?

it is exactly what you stated, a gamble to hold thru them or rely on them driving the stock higher or lower. you can never know which way a stock will go after reporting.

[em26jamie]

I trade a few companies on earnings. Last week I bought VMW, AAPL, and SBUX before their earnings. Two of those did me well. SBUX actually got me $20. I did better in BIDU today, even though they push back the date of their announcement "due to the Chinese New Year". I plan on trading QCOM later this week, then wait for PCLN. There are some companies that have a good habit of rising after earnings like VMW, AAPL, PCLN, and BIDU.

[peanuts]

Play an options straddle and you can win big if there is a big move either way:

http://www.mrmarketishuge.com/showpost.php?p=85305&postcount=1142

[em26jamie]

Play an options straddle and you can win big if there is a big move either way:

http://www.mrmarketishuge.com/showpo...postcount=1142

How did those turn out? I only see that 1 post there.
I'll paper trade my own, using CME, who report Thursday morning.
10 FEB $250 calls for $2.50 ($2500)
10 FEB $230 puts for $3.60 ($3600)
I'm interested in how this will play out.

[em26jamie]

So I put this to the test last night with dinosaur AOL.

100 Feb $17 calls @$.46 ($4600)
100 Feb $15 puts @$.36 ($3600)

Today after earnings, it's up over 8%.

The calls are now $1.55 for $15,500, or a profit of $10,900.
The puts are now $.05 for $500, or a loss of $3100.
Total profit of $7800, or 95% of the original $8200 bet.

Can't wait to see what CME does.

[em26jamie]

After looking at your link, maybe I got this backwards. I should go higher on the puts and lower on the calls? Let me try it way on something else then.

DOW reports tomorrow so I'll look at this.

$33 calls are $1.45 at close today.
$35 puts are also $1.45.

Now I'll see what happens.

[peanuts]

This was the result:

http://www.mrmarketishuge.com/showpost.php?p=85341&postcount=1144

And to confirm that this strategy worked, I ended up using it shortly thereafter for several plays. The key point being that the stock must move outside of the spread between call and put. Otherwise, you just end up with a loss from the premium devaluation. This is only good for big moves on earnings announcements or some other gap-like move in a stock with a nicely traded option chain.

Good luck and let us know how it pans out

[em26jamie]

So you would need to do this with a stock that has decent moves to either side after earnings.

For the CME options:
The 10 Feb $250 calls are now at $10.5, for $10,500.
The 10 Feb $230 puts are now at $.35, for $350.
Overall, they are worth $10,150, from an initial bet of $6100, for a profit of $4050. 66% gain. Not bad. The stock has moved almost 6%.


For the DOW options:
The $33 Calls are at $.96, down from $1.45.
The $35 puts are at $1.40, down from $1.45.
It's a double loser. The stock has only moved about 1% so far.

As for my QCOM position, while it was up between 5-6% after hours and pre market, it's only up 2% in the open market. Damn crooks.

[em26jamie]

OK, so now I'm going to try this with real money, but not a lot, with APKT. It has some big swings on earnings reports. With my luck, it'll be flat and I'll lose both ways.

10 APKT $32.50 calls for $1.05 ($1069.50 w/commission)
10 APKT $27.50 puts for $.95 ($969.50 w/commission)
Total bet of $2039.

[em26jamie]

So you would need to do this with a stock that has decent moves to either side after earnings.

For the CME options:
The 10 Feb $250 calls are now at $10.5, for $10,500.
The 10 Feb $230 puts are now at $.35, for $350.
Overall, they are worth $10,150, from an initial bet of $6100, for a profit of $4050. 66% gain. Not bad. The stock has moved almost 6%.


For the DOW options:
The $33 Calls are at $.96, down from $1.45.
The $35 puts are at $1.40, down from $1.45.
It's a double loser. The stock has only moved about 1% so far.

As for my QCOM position, while it was up between 5-6% after hours and pre market, it's only up 2% in the open market. Damn crooks.

If you waited until the market close on CME, the $250 call options were $16.9. The puts were at .25. That would be $16,650 on a $6100 bet for a 173% gain. To me, this is obviously an isolated event. I wouldn't expect this to happen too often.

[em26jamie]

So here's what I got from APKT. Very strange day. Their earnings weren't even half of what "The Street" estimates were, coming in at .12 vs. .29 est. Ouch. Revs missed badly too and they guided down. Stock took a 16% hit in after hours. When I got home from work this morning, in pre-market it was still down 12%. I was thinking I this was going to be good and I went to bed. Got up at 10:30 to use the bathroom and saw the stock was up 5%! I'm like, "WTF?" Must have been the jobs data.

So I sold the puts at .30 for proceeds of $280.5 (Scottrade's commissions).
Just sold the Calls a few minutes ago at $2.00 for proceeds of $1980.5.
So that's a total of $2261. I put down $2039 so that's a 10.9% gain. The stock is up 7.5% as I write this. If the stock had held true to form and plunged like it did last quarter on bad earnings, I probably would have made much more.

Meanwhile, the CME $250 Feb 2012 calls from the earlier post are now at $22.50. That would be $22,500! Good Lord! Almost 1000%!

[IIC]

This was the result:

http://www.mrmarketishuge.com/showpost.php?p=85341&postcount=1144

And to confirm that this strategy worked, I ended up using it shortly thereafter for several plays. The key point being that the stock must move outside of the spread between call and put. Otherwise, you just end up with a loss from the premium devaluation. This is only good for big moves on earnings announcements or some other gap-like move in a stock with a nicely traded option chain.

Good luck and let us know how it pans out

That was a good strategy in the tech bubble...But over the long haul it rarely works as far a s I know...Doug

[Deaddog]

That was a good strategy in the tech bubble...But over the long haul it rarely works as far a s I know...Doug

It wouldn't have worked with SIMO.
Paper trade only but would have had a small loss. Mainly the spread.

[em26jamie]

I guess a true straddle would be to buy an equal number of calls and puts at the same strike price and the stock needs to go up or down significantly for the gainer to outweigh the loser.