WFMI Earnings Strategy
Two Choices Going into Earnings
PLAY: Sell your WFMI March 29 Calls (O:WFMI 10C29.00) at market, good for the day. Hold your WFMI March 27 Puts (O:WFMI 10O27.00).
Dear Bottarelli Research Member,
Good afternoon. Looking at our WFMI March 29 Calls (O:WFMI 10C29.00) and WFMI March 27 Puts (O:WFMI 10O27.00), we originally entered the calls for $1.43 and the puts for $1.42, good for a total entry price of $2.85. As I write, the calls trade for $2.60 and the puts trade for $0.60, good for a total price of $3.20. That’s a modest 12% gainer. If you’re a conservative trader, I recommend selling this entire position now. In other words, take the money and run!
Now, if you’re more speculative, I think the best choice right now is to sell the calls, and then hold the puts for a pending sell-off. Remember, we entered the entire position for $2.85, and we can sell the calls right now for $2.60. Then, if WFMI reports earnings tomorrow that push the stock lower, we’ll be in position to lock in put gains on top of today’s call sale. This is a little more risky, as WFMI could keep running higher. But rarely do I see a stock rally hard into an earnings report and then continue moving in that same direction after the report is released. It can happen, mind you, but I don’t see it too often. Therefore, your second choice is to sell your calls now and then hold your essentially free puts for an earnings-based sell-off. In my view, this is like selling our calls at close to break-even, and then holding our puts as a free lottery ticket. Tactically, this makes a lot of sense. Let’s execute it now!
PLAY: Sell your WFMI March 29 Calls (O:WFMI 10C29.00) at market, good for the day. Hold your WFMI March 27 Puts (O:WFMI 10O27.00).
Going forward, I’ll continue to monitor this position for anyone who decides to continue holding the calls. For you conservative traders, take your money and run now!
And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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