Saturday, February 25, 2012

$PCLN earnings strategy

update 28feb - per the strategy below i took profits on the call fly.. stock traded into the priced in box on chart. also closed both legs of the diagonal to take profits there. out of $pcln now.

earnings after the close on 27feb. heres my strategy. i currently have a DITM leap and a short 500 call.. yes, thats a 500 call..stock has run so much that its way in the money. i want to make a low premium trade for an upside move from earnings. the weekly options are pricing in about at 50point move in either direction (add the ATM call and put prices to get that) if pricing is accurate that puts the stock into the red boxes on chart.. i will be looking to buy the weekly 630/640/650 call butterfly on monday.. 650 was the highest strike available on weeklies, if higher strikes are trading i may revise this. So this call fly will profit if the options market has the move accurately priced.. if it spikes up i will take profits the next day and not try to press my luck and ride it out to friday opex since thats 4days away by then.
    since my diagonal is way in the money..the "position"is not benefitting from any up move since the Leap is gaining and the short call is loosing about the same about, so rolling the short call up to next higher strike at 505 or 510 for next month still is only getting me chump change if anything. so if stock spikes up or really even if it stays unchanged i will close both legs of the diagonal..take my profit from the months of short call premium i was receiving and move that capital into another stock..maybe an $AAPL diagonal.
    I am not "playing" for a down move on earnings, such as a put fly in addition to the call fly.. but if the stock sells off and gets to the red box expected area..especially if earnings are good but market sells it off anyway..(bullshit selloff as i call it)..then you have some good support levels to shoot against for credit put spreads.. all the moving averages are together near spreads to be at/below that level, maybe even below the 470 support level. depending on size of selloff, i may then roll the short call up to the Apr510..likely for credit.

a. stock moves up as priced in..630/640/650 call fly profit and close diagonal to use capital elsewhere
b. stock moves down as priced in then look at credit put spreads and keep diagonal rolling up and out on short call for credit
c. stock unchanged, likely close diagonal and move capital elsewhere.

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