After writing yesterday’s post, I realized that my earnings trade for today should be fixed. So I turned the trade around. The key thing is that I made it into a long straddle waiting for earnings to come out after the close yesterday.
Here is the chart that shows the result:
Date 2/25/2009 2/26/2009
Stock FLS 46 54
45 call 4.1 8.3
45 put 3.8 1.2
Total 7.9 9.5
Return 1.6 / 7.9 = 20%
Yesterday, I bought the 45 straddle, that is, calls and puts both with a strike of 45 which was close to where the stock, Flowserve, was trading. It cost me 7.9 for each straddle. They announced good earnings last night so the stock opened much higher. Around 10 AM I sold the straddles for $9.50 each and made 20%.
Really, you only need to hold the position overnight. The risk is that the volatility goes out of the options and they collapse in price. But right now earnings are very volatile and there are a lot of surprises. So it seems to me that this is a fairly safe trade.
More to come tomorrow. I will try a few more of these trades overnight tonight.
0 Responses
Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.