A reader at optioninvestor sent me an e-mail, wondering what my policy was on holding stocks or options ahead of earnings. In light of the action ahead of us, I'm blogging it for all to read.
I want your thoughts about holding stocks and options over earnings. What do you do? Thanks
Basically, it depends on sentiment and what your stock has done ahead of earnings AND where you entered. Add to that your time horizon and you have lots of choices to make. I like to look at option chains and if I see very little put support below, I tend to exit before. If your question is about GOOG, lots of shorts lining up and if they suprise, you can bet the stock will climb further. However, there is some very good analysis out there on their ad business and revenue shenanigans and there is a growing buzz they might miss, hence all the shorts. That is not a stock I would be directional with either way. I think the play with GOOG is a straddle, but those strikes are pretty darn expensive and we will need a big move. I'm staying clear of GOOG, except maybe on a drop to gap close just above 300, where I would be a buyer. Here, not interested.
Basically, if you are going to hold a stock over earnings, I recommend hedging with OTM puts if long , or if you trade futures and the stock is a market mover, be ready to take measures after hours with futures. INTC was a good example on how OTM puts saved the day from a catastrophy. But the real answer to your question is: if you already have a nice profit, why hold over? Take the money and run.
I want your thoughts about holding stocks and options over earnings. What do you do? Thanks
Basically, it depends on sentiment and what your stock has done ahead of earnings AND where you entered. Add to that your time horizon and you have lots of choices to make. I like to look at option chains and if I see very little put support below, I tend to exit before. If your question is about GOOG, lots of shorts lining up and if they suprise, you can bet the stock will climb further. However, there is some very good analysis out there on their ad business and revenue shenanigans and there is a growing buzz they might miss, hence all the shorts. That is not a stock I would be directional with either way. I think the play with GOOG is a straddle, but those strikes are pretty darn expensive and we will need a big move. I'm staying clear of GOOG, except maybe on a drop to gap close just above 300, where I would be a buyer. Here, not interested.
Basically, if you are going to hold a stock over earnings, I recommend hedging with OTM puts if long , or if you trade futures and the stock is a market mover, be ready to take measures after hours with futures. INTC was a good example on how OTM puts saved the day from a catastrophy. But the real answer to your question is: if you already have a nice profit, why hold over? Take the money and run.
This entry was posted
on Monday, January 30, 2006 at 10:11 PM.
