Stocks & Commodities V. 31:4 (61): Explore Your Options by Tom Gentile

Stocks & Commodities V. 31:4 (61): Explore Your Options by Tom Gentile
Item# V31C04_535EYO
$2.95
Availability: In Stock

Product Description

Explore Your Options by Tom Gentile

DOUBLE SPREADS

At a recent seminar, I was asked what might be the best way to take advantage of a stock that drops after an earnings disappointment. I knew what stock he was talking about ó Apple (AAPL). Just a week earlier, I had created a case study for AAPL just after the earnings report. Hereís a typical post-earnings drop on a big-name stock, as well as one strategy to look at trading when this occurs.

Typically, post-earnings disappointments are not from good stocks. Companies post earnings outside of the daytime trading sessions, usually announcing after the market close or before the market opens. Often, this results in a gap occurring, as the stock will most likely drop. Unless you want to trade the after- or before-market sessions, as option traders we are limited to trading when the market opens in New York following the announcement. Because after- and before-market announcements give us an idea of where the stock will be trading during the next-day session, it gives us time to set up a strategy.

Typically, the option market gets stirred up right before an important earnings announcement, and implied volatility gets higher than average. After the announcement, the next session will usually see the stock price move, either up (for positive earnings announcements) or down (for negative), but option premiums will most likely fall either way. But there are rare occurrences when a stock drops, and the time premium in options will not fall as fast. This presents an opportunity for the option seller. But how do we sell premium and protect ourselves from unlimited risk? Spreading. And how do we create a trade thatís neutral in direction and risk? Double spreading!




FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.




Take Control of Your Trading.
Professional Traders' Starter Kit
All these items shown below only $299.99!
  • 5-year subscription to Technical Analysis of STOCKS & COMMODITIES, The Traders' magazine. (Shipping outside the US is extra. Washington state addresses require sales tax based on your locale.)
  • 5 year access to S&C Archive
  • 5 year access to S&C Digital Edition
  • 5-year subscription to Traders.com Advantage.
  • 5-year subscription to Working Money.
  • Free book selection.
  • Click Here to Order