Google (GOOG) reported earnings on Thursday, July 19, 2012, after the market close.
There are many ways to play earnings. Some people would bet on the direction of the stock movement after the announcement and buy or short the stock. Others will buy call or put options. My opinion is that predicting the market reaction to earnings is an extremely difficult task. In case of Google, the options expiration is the next day after the announcement, so if you are wrong, you are likely to experience a 100% loss.
My favorite way to play Google earnings is by placing a reverse iron condor few days before earnings and selling it before the announcement when IV (Implied Volatility) spikes. Please note that this is a standalone trade.
This cycle I decided to place the trade a bit earlier than usual, due to low IV. This is the trade I placed on June 28, 2012 with the stock at $563:
Trade #1:
- Sell to open July 20 2012 520 put
- Buy to open July 20 2012 530 put
- Buy to open July 20 2012 600 call
- Sell to open July 20 2012 610 call
The debit paid: $4.10.
Fast forward to July 6 - the stock is at $590, the trade was closed for 15.4% gain. Time for a new trade, with new strikes:
Trade #2:
- Sell to open GOOG July 20 2012 550 put
- Buy to open GOOG July 20 2012 560 put
- Buy to open GOOG July 20 2012 620 call
- Sell to open GOOG July 20 2012 630 call
The debit paid: $4.60
Fast forward to July 11 - - the stock is at $569, the trade was closed for 15.2% gain. Time for a new trade, with new strikes:
Trade #3:
- Sell to open July 20 2012 520 put
- Buy to open July 20 2012 530 put
- Buy to open July 20 2012 600 call
- Sell to open July 20 2012 610 call
The debit paid: $4.10 (same price and same strikes as trade #1).
On July 19, with the stock around $592, this trade was closed for 12.2% gain.
It is not common that you can play earnings three times with the same stock at the same earnings cycle, but it happened this time. The gains have been achieved by combination of rising IV and the stock movement.
Thank you Google, and see you next cycle!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
