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Free Earnings Trade of the Week – Wednesday, 11/20/13

Free Earnings Trade of the Week: Green Mountain Coffee Roasters (GMCR) – After the markets close on Wednesday, 11/20/13.

Green Mountain Coffee Roasters, Inc. (GMCR) is scheduled to report earnings after the markets close on Wednesday, November 20, 2013.

Green Mountain Coffee Roasters, Inc. is well known to move a lot after reporting. On their May 8th report, the stock made a $17.00+ move upwards. While last quarter was a little more tame, this stock is very consistent when using a Reverse Iron Condor. A Strangle strategy is not the smart choice here. It is extremely expensive and too much of a price move is needed just to break-even. While there is the chance that GMCR may make a move similar to the May 8th report, it is naive to think that will happen all the time. This strategy is definitely the right move to make for this stock. I am also using the November Week 5 expirations, as a safety net in the event the price move is only moderate (which I do not expect at all). I am extremely confident in this trade and recommend using at least a 5% allocation. Here is the stock movement after the the last three quarters:

Aug 8, 2013 73.50 79.60 72.49 76.48 12,762,500 76.48
Aug 7, 2013 81.02 81.10 78.51 79.26 7,275,200 79.26

May 9, 2013 67.92 76.99 67.00 76.04 26,218,400 76.04
May 8, 2013 58.94 59.48 57.76 59.48 8,942,500 59.48

Feb 7, 2013 44.66 47.55 43.85 46.32 18,430,600 46.32
Feb 6, 2013 47.54 49.10 46.68 48.94 11,083,500 48.94

Here is how the trade is placed:

Entered Trade

Buy 20 GMCR NovWk5 56 Put
Sell -20 GMCR NovWk5 55 Put
Buy 20 GMCR NovWk5 66 Call
Sell -20 GMCR NovWk5 67 Call

Requirements

Cost/Proceeds $1,200.00
Option Requirement $0.00
Total Requirements $1,200.00
Estimated Commission $120.00

Greeks / NBBO

Symbol Bid Ask IV Delta Gamma Vega Theta
GMCR NovWk5
56 Put 1.85 1.95 112.01 -526.00 60.21 63.16 -392.00
GMCR NovWk5
55 Put 1.57 1.66 112.73 463.56 -55.91 -59.03 368.84
GMCR NovWk5
66 Call 2.33 2.46 105.66 742.67 73.93 73.16 -430.60
GMCR NovWk5
67 Call 2.02 2.14 105.05 -672.73 -71.78 -70.62 413.17
Net 7.50 6.45 6.67 -40.59

NBBO 0.38 0.82, Try to pay 0.60 or less for this trade. At most, pay 0.65. See the attachment for the profit/loss chart.

GMCR RIC 112013

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6 Responses to Free Earnings Trade of the Week – Wednesday, 11/20/13

  1. Ron C. says:

    Kevin, do you mean the Dec 21 options? At one point you indicate Nov options.

  2. Ron C. says:

    Thanks – I got the position opened at .65.

    Do you expect to hold these to expiration?

  3. Ron C. says:

    … or, no, you would exit all four legs at once, as soon as GMCR hits either 67 or 55?

    I was just looking at Etrade’s conditional ticket. I don’t think it allows to set up a sell order when a high OR a low price is met on the underlying… you have to choose one or the other.

    So you have to keep an eye on the stock and close the position manually.

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