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Earnings Trade of the Week: Intel Corp. (INTC) – Reports After The Markets Close – 1/14/16

Intel Corporation (INTC) is scheduled to report earnings after the markets close on Thursday, January 14, 2016.

Last quarter, the stock had the following price movement after reporting earnings:


Oct 14, 2015


31.39

32.93
30.85
32.80
75,954,800
32.57

Oct 13, 2015

32.03
32.48
31.98
32.04
35,588,600
31.82

(INTC) is a stock that historically does not make too much of a price move after reporting earnings. Also, tomorrow is expiration Friday, so using a strategy that takes advantage of time-decay and a lack of a large price move is the right strategy to use. For this trade, I will be placing a Neutral Calendar Spread. The current Implied Volatility On the January 2016 expiration (the sell side) is at 114, while the February expiration is only 31. This is always important when looking at the Neutral Calendar Spread: the discrepancy in the IV. It is a great indicator to show an overpriced option (the sell side). I am giving this trade a 10/10. It should profit immediately tomorrow morning, which is when I plan to close it out.

Here is how the trade is placed:

Entered Trade

Sell -25 INTC Jan16 32 Call

Buy 25 INTC Feb16 32 Call


Requirements

Cost/Proceeds

$925.00

Option Requirement

$0.00

Total Requirements

$925.00

Estimated Commission

$75.00


Greeks / NBBO

IV

INTC Jan16

32 Call

0.88

0.91

114.31

INTC Feb16

32 Call

31.30


NBBO
0.35 – 0.41. Try to pay 0.38 or less for this trade. At a maximum, pay up to 0.40. See the attachment for the profit/loss chart.

INTC NCS 11416

I will post the close order price tomorrow pre-market before the opening bell.

Update 1: 9:20 am EST: Pre-market, the stock is down 2.10 a share. I am expecting the stock to make a recovery during the day. I am placing the order to close this trade out at 0.65. I will update any changes here, if needed.


Update 2: 0.60 STC

Update 3: STC at 0.50.

Great Start Trading The New Year – Daily Options Trading Strategy (DOTS) – 1/4/16

Yesterday, we had 4 Daily Option Trading Strategy (DOTS) trades, all positions closed out. Each trade was a call position, showing that even in rough market conditions, the DOTS strategy does extremely well. 2008 and 2009 were some of my best years trading, providing plenty of call trades daily. The sell-to-close (STC) orders above the price paid per contract were increased on each trade more than the average, as the current market volatility will provide this. You can see my trade log for the times the trades were placed and the STC price for each trade.

3 Quick In-and-Out Daily Trades Today, Getting Plenty of Action 11/3/15

The three trades placed today were on LNKD puts at 10:24 am EST, position closed 13 minutes later; BABA calls at 10:44 am EST, position closed 11 minutes later; and AMZN calls at 10:46 am EST, position closed 35 minutes later.

The daily trades are picking up even more lately, but always a consistent number of trades happen weekly, regardless of market conditions. The daily strategy (DOTS) does require patience, but you really don’t need to be glued to a computer screen non-stop, as the Bollinger Bands provide great insight as to when a trade is looming. If you have any questions on the strategy, you camn leave a comment or e-mail me at: kmob79@gmail.com

Determining Sell-To-Close Prices Using the Daily Options Trading Strategy (DOTS)

There are numerous factors I consider when choosing sell-to-close (STC) price when using the Daily Options Trading Strategy (DOTS). Among them are the following:

  • The share price for each security
  • The stocks volatility, daily highs and lows, and current market conditions
  • Width of Bollinger Bands
  • The time of day the trade is placed
  • The current bid/ask price
  • Leverage

The share price is extremely important when choosing a STC price. For example, a stock such as Netflix (NFLX) will have a higher STC than Twitter (TWTR) based on share price. NFLX is currently around $99.00/share, while TWTR is $28.00/share. On average, the minimum STC I would have on NFLX is about $0.40. This means that if I paid $4.00 per contract, my STC would be at $4.40. For TWTR, the average STC would be between $0.20 – $0.30. If the price per contract is at $1.20, the STC would be between $1.40 – $1.50.

A stock like Google (GOOGL), however, would have a much higher STC. Since the current share price is around $630.00/share, the minimum STC would be about 0.70, but usually much higher, $1.00+. This is because of higher price per contract paid, it moves more in dollar increments, and has wider daily price swings.

A stock that has higher volatility also plays a role in choosing a STC that assures the trade will be exited as soon as possible. Some of the stocks on the DOTS list simply move a lot more than the others daily.  This is why I have the 3 Tiers with 27 total stocks. I will always prefer to trade stocks that are higher-priced and have larger daily swings. Tier 1 has that. This not to say that stocks on Tier 2 and Tier 3 are not great for trading, they are, but generally the Tier 1 stocks will take a lot sooner to exit than the Tier and Tier 3 stocks. On the same hand, stocks like TWTR, BABA, FB, BA, and CRM all have inexpensive contracts that allows traders to use that as leverage. For example, if it cost me $10.00 per contract to trade a GOOGL strike price, but only $2.00 to trade FB, then I would multiply the contract size on the FB trade five times that of GOOGL to basically have the same cost basis.

  • GOOGL 10 contracts X $10.00/contract = $10,000.00 cost to place trade. $1.00 STC above price paid/contract = $11,000.00 (minus commission costs).
  • FB 50 contracts X $2.00/contract = $10,000.00 cost to place trade. $0.20 STC above price paid/contract = $11,000.00 (minus commission costs).

The minor downside is that FB will take a bit longer to exit than GOOGL would, but this is not always the case. Just understand that after years of trading my strategy, this is generally true of the lower priced stocks. I actually find TWTR to be more volatile than FB, and those contracts are even lower-priced than FB.

The time the trade is placed is also very important. If it is very early in the day, I will use a higher sell-to-close price than I would if there were only two hours left in the trading day. If early, I can always adjust the STC price and lower it, as there is still plenty of time left. If I place a trade at 2:00 p.m. EST, my STC would be more conservative. This is due to lower volume, possible pinning (happens often late Friday’s). If there is an early GOOGL trade at 9:50 am am EST, I would use a STC starting at $1.50 above price paid per contract. Then, depending on the price movement, would adjust and lower accordingly from there (increases happen, as well).

The Bollinger Bands play a very important role in determining my STC price. This is often gained from experience trading the strategy and repetition. If I see a GOOGL chart, where the bands are extremely wide, and all of the bottom 4 indicators are showing extremely oversold for a call buy, I will not hesitate starting with a much higher STC than I usually would. PCLN has this happen often. The one main issue with a stock like PCLN is the bid/ask prices, which I will get into later. A couple of years ago I had a PCLN call trade that had a $5.00 STC order above price paid per contract that cost $18.00 initially. If I see an APPL chart, and there is a $4.00 + difference from high to low daily when the time to place a trade is available, I would set a STC higher than usual. On TWTR or GPRO, for example, if I see a $2.00 difference from the high to low, this would also be a situation where an increase STC price is appropriate. One thing I look at also is the top Bollinger Band high and the Bottom Bollinger Band low, not necessarily the price action, but the Bands themselves. This is a great indicator of where the stock can move to.

Bid/ask prices are also very important and play an important role in my STC prices. As I mentioned, PCLN could probably be traded at least 3 times per day if only the bid/ask prices were reasonable. Especially the last few months, I am seeing a bid/ask difference on the strike prices that are sometimes $3.00 + apart. This is impossible to trade. Occasionally, I will see PCLN strikes that are about $1.20 apart. I will trade this, but would have initially been a $2.00 + STC price above the price paid per contract, I would automatically know to place the STC at $1.00, maybe slightly more. This is because since these trades are round-trip trades, getting in and out of the trade will cut profits simply due to the wide bid/ask prices. If PCLN should ever have a stock split (hope it’s soon), it would probably take over as the #1 DOTS stock to trade. GMCR, even as a lower-priced DOTS stock, has had this issue with the bid/ask prices being too wide. Currently at $58.50/share, the $56.00 strike price call options are trading at $2.24 – $2.76. This is too wide. If my pre-determined STC price would be at $0.30 above price paid per contract, it would be extremely difficult to exit this trade without needing double the price move of the share price. A more reasonable bid/ask would be $2.25 – $2.35 or $2.20 – $2.40 even.

There are trading opportunities where I will buy a lot more calls or puts than usual. In situations like this, since you are more leveraged, the STC can be lowered. I will do this especially if it is later in the trading day. 100 contracts will require a lot less of a price move to exit the trade than 50 contracts would. If I have 100 contracts on TWTR at $1.20 per contract and my initial STC price was at $0.30, I would have no problem lowering that to $0.20 if I wanted to close the trade out as soon as possible. If a STC on GOOGL was initially set at $1.00, lowering that to $0.70- $0.80 is perfectly fine.

My subscription service on Skype and Chatzy for these DOTS trades does provide all of these real-time STC orders, but I wanted to give everyone a good gauge on how to determine what STC orders are appropriate under each circumstance.

If you have any questions about determining a STC price, you can leave a comment here or e-mail me at kmob79@gmail.com.

Thanks.

 

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