Play BRCM Earnings
Another Cheap Strangle
PLAY: Buy the BRCM February 28 Calls (O:BRCM 10B28.00) and the BRCM February 27 Puts (O:BRCM 10N27.00) at market, good for the day. The total cost should be around $1.85. Do not place a sniper sell or stop limit at this time.
Dear Bottarelli Research Member,
After today’s close of trading, shares of Ctrip.com (CTRP – NASDAQ) are set to report earnings. Leading into this announcement, we’re holding the CTRP February 32.50 Calls (O:CTRP 10B32.50) and the CTRP February 30 Puts (O:CTRP 10N30.00) for a total entry price of $3.04.
If you recall, we’re going into this announcement with a slight upside bias, which is reflected in our call versus put pricing. Under the ideal situation, CTRP would gap up to $35.00 at the open tomorrow, which would allow us to sell our calls. Then, we’ll hold our puts for a subsequent downside move. If this scenario plays out, we’ll once again be positioned to achieve a great earnings winner.
As I write, the CTRP calls are $2.60 and the CTRP puts are $0.60, good for a $3.20 basket price. Unless CTRP rallies aggressively into the close (offering us the opportunity to lock in a pre-earnings winner), we’ll more than likely end up holding both sides going into their announcement.
In the meantime, we have another earnings play shaping up on Broadcom (BRCM – NASDAQ). As you can see below, the wireless equipment manufacturer has aggressively sold off leading into their earnings announcement, scheduled for tomorrow after the close.
In cases like this, you typically see an upside reaction to earnings, as all of the bad news has already been priced into the stock. But then again, earnings plays are always a coin flip, which is why it’s good to be covered on both sides.
Since BRCM has cheap options with $1.00 price increments, we can own a combination of calls and puts for around $1.85. Therefore, all we’d need is a $3.00 move to hit a winner between 25% and 50%. Given the cheap cost and BRCM’s oversold nature, it’s worth a shot to add this one as our newest earnings strangle. Here’s the play…
PLAY: Buy the BRCM February 28 Calls (O:BRCM 10B28.00) and the BRCM February 27 Puts (O:BRCM 10N27.00) at market, good for the day. The total cost should be around $1.85. Do not place a sniper sell or stop limit at this time.
And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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