- Posted by Robert Sinn
- on October 26th, 2011
Yesterday’s $AMZN earnings options trade was designed to profit from either of two scenarios: A. A pin near 230 along with post earnings volatility compression B. A large move lower with each point below $200/share being worth an additional $100/options contract used in the trade. As the stock quickly dove below 190, minutes after the earnings release my trade looked absolutely golden, however, I knew that the bulls would not go quietly and allow a breach of the all-important 200-day SMA (197.25) without a fight. Therefore, I went long common stock in the after hours at 187.48 – I went long 1/2 as many shares as 215 strike puts I had purchased which had the effect of locking in a profit of +$24.02/share (215 – 187.48 – 3.50) on the 215 puts. I traded out of these shares at 196.48 a few minutes later for +9 (I wasn’t aiming for a round number gain of 9 points, it just happened that way).
After thumbing through the earnings report and digesting other respected opinions I decided that AMZN was likely to trade in a tight range between 195-200. Feeling more comfortable now that I had 9 points of extra cushion thanks to the after hours trade, I decided to let the options ride overnight. Unfortunately for me, AMZN ramped up into the regular market open and to make matters worse I had poor execution in closing out the 215 puts which ended up costing me an entire $1/share. When it was all said and done what should have been between a $5-7/share net winner turned into a $2/share net winner (not including the after hours trade).
I assume that many readers might ask why I chose to hedge the puts by buying stock in the after hours. The answer to this question lies almost entirely in a gut call that has to be made at that moment in time based upon the new information which has been presented and everything that I know about the fundamental and technical situation of the stock. I made a gut call that the the stock was unlikely to fall much below 187 and that it would be wise of me to lock in gains.
$AMZN – 1-minute
$NCTY Daily- This one continues to run higher since I wrote about it two weeks ago. As far as I know nothing has changed with the fundamental situation of the company except that the China fraud fear liquidations appear to have abated in recent weeks. This is a great example of how markets can move to ridiculous extremes based on fear and panic. I sold 1/4 of my position today for a ~50% gain, I continue to believe this name will see $6+ in the near future.
$GS Daily- I continue to hold this name since going long the day before earnings. Minimum swing target at the gap fill around 112-113. Both the GS and NCTY trades fit perfectly with this morning’s blog post on letting trades work when they show you a profit from the outset, don’t “sell yourself short”.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Robert Sinn is a professional trader and market analyst who focuses on multiple asset classes including equities, futures, options and currencies. He integrates fundamental and technical analysis. More »