Unofficial Earnings Play

Unofficial Earnings Play

Hello Smart Option Sellers! As mentioned in previous alerts, as an added bonus to your Smart Option Seller membership, I am going to offer up unofficial opportunities to capitalize on the explosive moves that can occur after earnings results are announced. This is just another way to utilize options to maximize potential profits. Many times, stocks will make larger moves than expected, and the best way to play these kinds of moves are by buying options - something which is in stark contrast to what we do here at The Smart Option Seller. Clearly, this is not the main focus of The Smart Option Seller and I'm not a huge fan of buying options this way, but when done properly, you can give yourself a decent chance of making a profit. One of the best types of stocks to take your shot for these earnings plays is with biopharmaceuticals, which are prone to explosive moves. This is typically 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 bottom-line. Hence, earnings can lead to large jumps in either direction. Nektar Therapeutics (NKTR) NKTR, to me, isn't a hugely well-known company, but there's been a decent amount of larger than normal option activity on this stock of late. When you find stocks that have the bump in option activity, it typically means a large move can be imminent. The issue is, you may not be able to tell which way the stock will move. In this case though, there has been more activity in the put options (as buyers), which means a fall in the stock price is expected. 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. NKTR doesn't specifically fill this trait so much except for the last earnings announcement. But it has had some large price swings of late, and couple that with the large option activity, and we might be able to catch a good move here. In addition to finding stocks that have had large price moves after earnings announcements, you need to be able to buy cheap options within that expected range. No sense in buying an option $5 away from the stock price if the stock has a history of only moving $2 after earnings. That would be throwing money away. What do I consider "cheap" options? Anything priced between $.05 - $.20 per contract. And, you should buy them within the radius of which the stock is capable of moving. Plus, you have to use the shortest expiration date. At the moment, NKTR has been capable of moving $2-$3 per share after earnings, and the recent moves of late have allowed it to move up to $5 per share in just a few day's time. If we can buy options within that $2-$3 radius around the current stock price, we should be good. Here's what you can choose to do (unofficial play): In order to play it right, you have to buy both a call option and a put option about $2 - $3 radius around the current stock price when you enter the trade. Since we don't know officially which way the stock will move, we have to cover ourselves in both directions, hence, we need to buy both a call option and a put option. Use the August 18, 2017 expiration date, which gives us 10 days after earnings for any move to come to fruition. As of now, NKTR stock is hovering around $20. Earnings are released after the bell today. Look to buy the $18 put options for your downside, and buy the $22 or $23 call options for your upside. Try not to pay more than $.20 per contract for each of the call options and put options. Prices might change a little by the time you read this, so you can cheat a little if you have to pay a few pennies more. Since NKTR has the capability to move $2-$3 after earnings, we're hoping for it to exceed that range. If it does, we can pull some profits. There are two ways you can execute these trades: 1. You can outright buy each option separately as two individual transactions. Try not to pay much more than $.20 for each (total of $.40). 2. You can buy them as a "strangle". This is a spread type of trade where you will buy both the call option and the put option in a single transaction and pay one price for both ($.40 if you can). Ask your broker for help with the strangle trade if you are unfamiliar. Typically, executing a strangle is the preferred method as it allows you to buy both simultaneously which can keep you from being whipsawed around if you were to buy each one separately. 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. 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 August 18, 2017 expiration contracts that expire in 10 days. 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 will just evaporate and become worthless. So, keep that in mind if you don't think NKTR is capable of the kind of move we need. Get those orders in if you choose to do so. Remember, you are buying these trades, and they are optional and unofficial. I will send an alert tomorrow morning on follow-up action. Warren Buffett Report Thank you for the positive feedback on the report that I discussed in yesterday's alert. My goal at The Smart Option Seller is to help everyone become better option traders (using different strategies) so we can all grow our nest eggs. If you need the link again, click here to see more about it, or just read yesterday's alert. That's all for now. Continue to work all other trades as instructed and continue to hold all other open positions as-is. See the Current Portfolio below for current prices & instructions. Quick note on the Current Portfolio - if you are a new subscriber and don't have a position yet on any of our trades, make sure you enter your order at the original recommended sell prices. Do not enter any order at current prices unless it's higher than the official recommendation. If you are unsure or have any questions, please ask us! You can always contact us here Regards, Lee Let's Grab That Cash!

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