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Free Earnings Trade Of The Week: The Walt Disney Company (DIS) – Reports After The Markets Close On Tuesday, 2/9/16

The Walt Disney Company (DIS) is scheduled to report earnings after the markets close on Tuesday, February 9, 2016.

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

Nov 6, 2015

114.60
116.75
114.57
115.67
16,803,400
115.67


Nov 5, 2015

113.26
113.93
111.60
113.00
14,843,700
113.00

Historically, (DIS) does not move a lot post-earnings. I like the Neutral Calendar Spread here, which is a strategy that takes advantage of overpriced options and time-decay. The current Implied Volatility (IV) on the February Week 2 expiration is 86.77, while the Implied Volatility on the February 2016 expiration is 54.02. I am expecting the stock this quarter to move around $2.00 -$2.50/share This fits in well with the Neutral Calendar Spread strategy, as the break-even points are wide and the potential ROI is also high. I am giving this trade a 9/10.

Here is how the trade is placed:

Entered Trade

Sell -25 DIS FebWk2 91 Call

Buy 25 DIS Feb16 91 Call


Requirements

Cost/Proceeds
$1,000.00
Option Requirement
$0.00
Total Requirements
$1,000.00
Estimated Commission
$75.00


Greeks / NBBO

IV

DIS FebWk2 91 Call

86.77

DIS Feb16 91 Call

54.02

NBBO 0.30 – 0.50. Try to pay 0.40 or less for this trade. At a maximum, pay up to 0.43.

See the attachment for the profit/loss chart. I will post the price to close this trade out tomorrow before the opening bell.

DIS NCS 2916

Update 1: 9:25 am EST
: I am placing the closing price at 0.80. I will update any changes to this here, if needed.

Update 2: 1:48 pm EST: This trade is looking very good. STC still at 0.80.

Update 3: 2/1116: Position Closed.

Earnings Trade Possibilities for the Week of 1/19/16 – 1/22/16

Tuesday: AMD, CREE, IBM, NFLX

Wednesday
: FFIV, GS, KMI, PCP, SLM

Thursday
: AXP, ETFC, ISRG, SBUX, LUV, UAL, VZ

Friday
: GE

Daily Options Trading Strategy (DOTS) Updated List – 1/19/16

Here is the current (4) tier list of the Daily Options Trading Strategy, current as of 1/19/16:

Tier 1: AAPL, AMZN, FB, BIDU, GOOGL, LNKD, NFLX, PCLN, TSLA

Tier 2: BA, BABA, GPRO, IBM, CRM, TWTR, CHK, BBY, AKAM

Tier 3: C, MNST, PYPL, GDDY, EBAY, CMG, FIT, EXPE, STZ

Tier 4: , DIS, BWLD, CAT, FDX, HD, SHAK, COST, SNDK, ULTA

Earnings Trade of the Week: Red Hat, Inc. (RHT) – Earnings Trade – Reports After the Markets Close 12/17/15

Red Hat, Inc. (RHT) is scheduled to report earnings after the markets close on Thursday, December 17, 2015.

(RHT) price movement after reporting earnings has been unpredictable at times. Last quarter, the stock didn’t move too much at all, as this shows:

Sep 22, 2015

71.45
73.20
70.45
72.72
3,923,900
72.72

Sep 21, 2015

71.66
73.16
71.13
72.72
2,952,500
72.72

On the other hand, I have used Strangles on (RHT) many times before and have done extremely well. On specific stocks over the years, I have placed this strategy I will be using here. It is a Neutral Calendar Spread in combination with a Strangle that uses deep-out-of-the money calls and puts, along with at least month out expirations. The premise of the strategy is to immediately profit off the Neutral Calendar Spread, which in this case expires tomorrow, 12/18/15. The Strangle side can be looked at as a safety net and a potential big winner in the event the stock does make one its large price moves. Since this specific Neutral Calendar Spread trade allows plenty of price movement anyway at a great price, even if the stock make a big move, there is a good chance both sides will profit at some point.

To explain this strategy and how I expect to profit, look at it this way: Let’s assume that tomorrow pre-market, (RHT) isn’t doing much in terms of price movement. Maybe up or down $2.50 a share. This would be great, as the Neutral Calendar Spread would profit immediately (even quicker than usual since it’s expiring tomorrow). But what about the Strangle side, and how would that do? Since the price paid for the Strangle in this case is so minimal, the gains made by the Neutral Calendar Spread would more than wipe out any loss by either side of the Strangle. However, since the Strangle still has a month of time-value left on a volatile stock such as (RHT), it will still hold value quite well.

In the event that (RHT) makes a huge move, up or down, well, this would be even better, actually. Since the Strangle has that time-value, and the Strangle has unlimited profit on the call side, this would make even more than the NCS strategy. The same is similar with the put side on teh Strangle, only that a stock can only drop to zero. If the stock does make a large move, I will simply close out the Neutral Calendar Spread tomorrow before the markets close, probably fairly early in the day, just to close it out.

This is a unique options strategy, but you do have to very selective in which stocks to use this strategy with for an earnings trade.

Depending on your trading platform, you may have to enter each strategy separately. Most platforms will allow you to place it as one order. For simplification purposes, I will post each strategy and post what limit order should be placed for each, and as a whole.

Here is how the trade is placed:

Entered Trade: The Neutral Calendar Spread Side of the Trade (1)

Sell -10 RHT Dec15 77.5 Call

Buy 10 RHT Jan16 77.5 Call

Requirements

Cost/Proceeds
$750.00
Option Requirement
$0.00
Total Requirements
$750.00
Estimated Commission
$30.00

NBBO 0.50 – 0.95. Try to pay 0.75 or less for this side of the trade.

Entered Trade # 2: The Strangle Side

Buy 10 RHT Jan16 90 Call

Buy 10 RHT Jan16 65 Put


Requirements

Cost/Proceeds
$850.00
Option Requirement
$0.00
Total Requirements
$850.00
Estimated Commission
$30.00

NBBO 0.60 – 1.20. Try to pay 0.90 or less for this side of the trade. At a maximum, pay up to 0.95.


Entered Trade as One Order

Sell -10 RHT Dec15 77.5 Call

Buy 10 RHT Jan16 77.5 Call

Buy 10 RHT Jan16 90 Call

Buy 10 RHT Jan16 65 Put

Requirements

Cost/Proceeds
$1,650.00
Option Requirement
$0.00
Total Requirements
$1,650.00
Estimated Commission
$60.00

NBBO
1.20 – 2.25. Try to pay 1.70 or less for this trade. At a maximum, pay up to 1.75 for the entire order.

I will post the price to close the orders out tomorrow pre-market.

Update 1: 9:21 am EST: Pre-market, the stock is up around $6.00 a share. This is what I expected. On the NCS side of the trade, place the STC at 1.40. On the Strangle call side, this has some serious upside now, place the STC at $4.00. Leave the put side open for now. I’ll update this later.

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