RESULTS FOR WEEK ENDING NOVEMBER 11, 2011

Here is the breakdown of the trades for the week:

Green Mountain Coffee Roasters

GMCR     80     Call    $1.01

GMCR     90     Call    ($0.19)     This gives a Net Credit of $0.82;  ROI = 8.2%

Priceline.com

PCLN     505    Put       $1.66

PCLN     495    Put      ($0.96)

PCLN     550   Call       $0.31

PCLN     560   Call      ($0.14)     This gives a Net Credit of $0.87; ROI = 8.7%

Breakdown

GMCR

These trades were entered Wednesday afternoon.  The GMCR trade was spurred by the announcement that they totally tanked on earnings.  I went out and looked at the chart for GMCR:

As can be seen, the price had fallen from the 90s into the 60s then the bad earnings news came out.  Also look at the spike in volume that came out on earnings news.  This means LOTS of people were wanting out of the stock. This is a tailor made situation for the call spread strategy.  Since I was looking on the day earnings were announced the premium on the 80 and 90 calls were still high.  So I took advantage of that and created the 80-90 credit spread buying the 80 calls and selling the 90 calls.

PCLN

Earnings were announced on Wednesday 11/07/2011.  PCLN beat earnings going 7% above consensus estimates.  We put the PCLN put spreads on Thursday morning after the earnings announcement.  The 495 level was just over the 1 Std Dev mark and combined with the great earnings numbers we felt confident that the stock would not slide that far.  PCLN slid back a little every day except Friday. 

Thursday at the close of the trading day we put on the call spread for a couple of reasons.  First as can be seen by the chart 550 seems to be the resistance level.  Second the price slid despite the earnings announcement down to the 525 level.  With no unusual activity coming up over the last three days of the week the call spread seemed a good bet.  Lastly since we already have a put spread out there we can make a call spread of equal size without needing any margin. 

Normally I trade in index options.  VERY rarely do I put out spreads on equities.  This week was an exception.  The indexes I usually rely on just did not have anything to offer this week.  The SPX index which is my fave, was swinging 20-30 points a day in both directions.  My fallbacks the RUT and NDX were doing the same.  After going through my checklist for each of the indexes and equities offering weekly options PCLN & GMCR were the only ones I felt comfortable trading.  This is a process I go through each week.  Most of the time (90+%) I stick with the indexes, but this week the opportunity took me in another direction.

I have some questions that were emailed to me and have had some people ask me some things in person as well.  Coming soon some book reviews and I will be starting an educational segment to highlight options and the basics as well as focusing in on how I trade.

Sooo…if you have any questions please email to hashleycm@yahoo.com or hit me up on Twitter at awagel01.

TTFN

Ash