paper trade – aapl calls into earnings
Filed under: Uncategorized | Tags: aapl, analysis strategies ideas recap, options, paper trade |
Based on Google’s numbers last week, I’m going to make a paper trade betting on a wild market reaction to aapl’s numbers. I’m going to make this bet on both sides of the numbers, thinking that regardless of what the numbers look like the stock will move aggressively. So my buys are this (again no real money here):
~8% swing either way:
aug 175 calls: $5.20
aug 155 puts: $4.90
let’s say I’d invest $10k so I would buy about 9 calls and 11 puts based on price.
I’ve never made money with this stragey before but it has always intrigued me as a way to play earnings in these momentum stocks. I’m curious to see how it plays out.
For the record I “feel” that AAPL’s numbers will be VERY good, and as long as they don’t mutter anything about weakness going forward or offer any bad news about Jobs’ health, the stock will run higher tomorrow.
If you have never made a profit from these plays, have you taken time to try to discover why that is?
The major reason is that you are paying very high prices for the options you buy. Have you noticed that the implied volatility gets crushed after earnings ae announced?
Have you ever considered selling instead of buying?
I’m not talking about selling naked, but you could open an iron condor position by selling an out of the money call spread and an out of the money put spread. What would have happened if you sold the options you planned to buy, and to limit losses and complete the iron condor, you bought 180 call and 150 put.
http://blog.mdwoptions.com/options_for_rookies/
http://www.mdwoptions.com
Mark thanks for the comment…I will definitely check in with your blog. I have to admit I don’t really know too much about options strategies. I just have been experimenting with some paper trades and some real $$$ trades. I would say that I’m slightly below even on my options trading, and it is more due to luck than skill. I am learning quickly though, thanks in large part to increased journaling (and occasional blogging) of all my trades.
My paper trade would have made money today if I would have closed out my positions in the first half hour as the puts traded as high as $12 while the calls were around 60 cents when I looked…they were as low as 10 cents! but close at $1.77. So I would have lost $ 4.60 per contract on the calls but made $7.10 on the puts…BUT not closing out my position this morning would have resulted in a loss.
It’s tempting to hold on for bigger gains when you own a profitable straddle. But you never know where the stock price is headed next.
AFTER the earnings news is released, option prices shrink – and often continue to shrink for hours as the previous days sellers (like yourself) want to sell out the options they bought.