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Senior Producer
Yankees shmankees - Is there anything better than a good ol' fashion earnings preview with derivatives? From my standpoint, the answer would be a solid no.
But just incase you missed part of last week's show, I do want to update the faithful.
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Let's begin with Dan's brilliant trade on Apple, [AAPL
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] which was part of our "Make The Call" segment, where the traders bring you their best directional bets.
Dan, who has made fabulous calls in the past on Apple, just nailed it with his strategy ahead of earnings. He suggested buying the November 190/200 call spread, paying $7.80 for the Nov 190-strike call and collecting $4.20 for selling the Nov 200-strike call, net-net paying a total of $3.60 to win a possible $6.40. That risk-reward scenario didn't sit well with Dan, so to further reduce his costs, he sold the Nov 175-strike put and collected an additional $3.40. Now, if Apple stock falls below $175, he'd be forced to buy the stock on expiration. But with the money he collected from selling that put, Dan effectively bought that 190/200 call spread for a total of $0.20 cents, allowing him to make a potential $9.80 if Apple blows through that short-strike.
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How'd it turn out?
Well, an earnings blowout later and Apple shares are trading just north of $200 bucks, making Dan's trade a unqualified success. Between Stacey's call on Google, [GOOG
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] which went to $550, just as she predicted, and Dan's call on Apple, Options Action can only be considered must-watch viewing for both options and equity traders. We will have an update later on Dan's next move later on.
Now on to the others.
Stacey, still basking in the glow of her Google 520/550 call spread, was a little less bullish this week. She suggested collaring up some gains on Amazon, [AMZN
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] which could face some tough competition from Wal-Mart. [WMT
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] In conjunction with a long position, Stacey recommended selling the Amazon Nov-105-strike call for $2.10 and using that money to buy the Nov 85-strike put for $2.05, net-net collecting a nickel to buy protection that kicks in at $85.05. Above $105.05 her profits are capped, but with the stock trading at $94 bucks, Stacey's trade does allow for a considerable amount of upside.
Not to be outdone, Mike also offered up a defensive move on Microsoft.[MSFT
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] Against a long position, he too looked to collar up gains. Specifically, he looked to sell the Microsoft Nov 28-strike call for $0.25 to offset the purchase of Nov 25-strike put, which was trading for $0.35. Mike paid $0.10 to put this trade on, but he was able to buy protection that was closer to where Microsoft was trading, proving that just because we're risking less to spend more, doesn't mean we'll always have a free lunch.
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