Unofficial Earnings Play

Unofficial Earnings Play

Hello Smart Option Sellers! As mentioned previously, I am going to offer up unofficial opportunities to capitalize on the explosive moves that can occur after earnings results are announced. Many times, the stock will make larger moves than expected, and the best way to play these kinds of moves are by buying options - something which is not the main focus of The Smart Option Seller, and certainly something that I'm not a huge fan of. But, when done properly, you can give yourself a decent chance of making a profit. Gilead Sciences (GILD) One of the best types of stocks to take your shot is with biopharmaceuticals such as GILD, which releases earnings after the bell today. Biopharmas are always prone to big jumps due to the fact that the FDA is always either approving or rejecting their current drugs or ones in the pipeline. And, the earnings can reflect the results of those decisions on their bottomline. Hence, earnings can lead to large jumps in either direction. With GILD stock currently at $68.60 per share, it has been in a continual downtrend since last June 2016, where it topped out at $123 per share. It's been declining ever since. Does this mean it will continue to fall, or have we seen the bottom? For our purposes, it doesn't matter, because we need to cover ourselves for a move in either direction. I always say earnings are a crapshoot because I've seen stocks move in unexpected ways even if they beat analyst's expectations. So if you're going to play the game of buying options before earnings, you have to buy both call options and put options. One factor to keep in mind - the lower the stock goes, the less dramatic the potential gap moves could be. When the stock is trading over $100 per share, it has more room to jump. So in this case, we need to be wary about how far of a radius around the stock we pick our strike prices. When trading these earnings plays, I've mentioned that you need to find stocks that have a history of large gap moves after the results are released. GILD certainly has had its fair share of large moves, but as its price moves lower, choosing strikes that are within a $5 radius is a must at this point. And, the option prices need to be cheap enough. No sense in doing these trades if you're not getting a bargain. So, with that said, here's what you can choose to do (unofficial play): Look to buy both a call option and a put option about $4 - $5 radius around the current stock price when you enter the trade. Since not everyone will enter at the same time, not everyone will enter the same option trades because the stock might be at a different price. That doesn't really matter though. Use the May 5, 2017 expiration date (this Friday) and try not to pay more than $.20 per contract for each of the call options and put options. As of now, with the stock at $68.60, you should look at the $63.50, $64 & the $64.50 puts for your downside, and the upside, look at the $72.50, $73 & $73.50 calls. This trade is good for today only. Do not enter these trades tomorrow. Remember the rules: 1. These are "unofficial" trades, so you can't hold me to it! 2. Buying options is a low probability trade, so there will be many more losses than wins. This is why you only want to buy the really cheapie options. 3. These are one-day trades. You will know very quickly whether it will be profitable or not. 4. Don't go hog wild. These are "fun" trades, but don't bet the house. 5. Use the May 5, 2017 expiration contracts that expire this Friday. As mentioned previously, the worst case scenario for these types of trades is if the stock goes completely nowhere after the announcement. That's the death knell for trades like this. All option values we're looking at will just evaporate and become worthless. So, keep that in mind if you don't think GILD is capable of the kind of move we need. Get those orders in if you choose to do so. Remember, these trades are optional and unofficial. I will send an alert tomorrow morning on follow-up action. I'm still monitoring our new put-sell trades on CL & PG. As of now, neither has been filled. We may have to alter our strike price and/or expiration month. That's all for now. Continue to hold all other positions as-is. Contact us here. Regards, Lee Let's Grab That Cash!

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