More Earnings Announcement Trades

Learn from my mistakes.

I looked for some more earnings announcements to trade yesterday.  Here are the results for three of them.   The thinking is that there is likely to be many surprises in earnings announcements these days since earnings are very volatile.

Southwestern Energy

Southwestern Energy drills for gas throughout the South.  It announced earnings after the close yesterday.  It looked like there was no surprise.  The aftermarket trading was mostly unchanged.  This is what happened to the options.

date  2/26/2009          2/27/2009

SWN         27.70                    28.00

30 call     1.2                           1.1

25 put      1.0                          0.65

Total        2.2                          1.75

So the call was within ten percent but the put lost 35% of its premium.

Autodesk

Autodesk makes 3D design software for architects and chip designers and also 3D manufacturing software, known as computer aided design and computer aided manufacture.

date  2/26/2009          2/27/2009

ADSK      14                                13

15 call     0.65                           0.1

15 put      1.45                          2.2

Total        2.1                            2.3

ADSK had dropped 7% by the time I closed out the trade this morning,  and the options gained 10%.   The calls really collapsed in value.  While the puts had a delta of 75%.  They moved 75% as far as the stock.

Deckers

Deckers is a shoe manufacturer.  Their most popular product is those ugly UGG boots.  Ugly, but very popular.

date  2/26/2009          2/27/2009

DECK         53                             42

55 call     4.26                           0.25

50 put     3.17                           8.3

Total        7.43                            8.55

Deckers dropped 20%, a very large move.   Here we see that we couldn’t take full advantage of that move because the call had dropped so much.  Our return is only 15% not counting commisssions.

Research Questions

One thing to look into is how much does the initial move continue into the trading day.  What I mean is, maybe it was a mistake to close out the trades in the morning.  Perhaps it is better to let the trades that have big moves keep going through the day and close out later.

Another issue is, does the options open interest and implied volatility on the  day that the trade is placed tell us anything about the direction of surprise?

Things to think about.