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Wolf Option Trading
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I started trading back in the mid 90's while in junior high school and high school. My focus in college was on investment analysis. I have traded since the mid 90's with quite a few failures until I discovered how option trading could help me. I learned the lessons the hard way about options in... More
  • Managing a long term INTC trade and typical INTC post earnings reaction 0 comments
    Apr 19, 2011 8:15 PM | about stocks: INTC
    With INTC earnings soundly beating the street and trading over $20.80 in the afterhours one needs to manage the trade set up I mentioned in the 4/11/2011 Article (seekingalpha.com/article/262790-evaluati...; One would have been assigned 200 shares in that article based on the 4/15 expiry $20 puts one shorted at $0.21 each.  Selling @ $20.80 + in the after hours or tomorrorw 4/20/11 would net one at least $202 in profits.

    The entire trade was short 2 4/15/ $20 puts @ $0.21, short Jan 2012 $17.50 puts for $0.99 and to buy 5 Jan 2012 $21-25 call spreads for $0.93 each. 

    The first component of 4/15 $20 puts netted $202 in profits (if sold above $20.80).  This reduces the $21-25 call spread costs down to $0.526 each or a total of $263 dollars. 

    The short Jan 2012 $17.50 puts collected $0.99 or $198 total thus reducing those call spreads down from $263/.526 to roughly $0.13 per call spread or $65. 

    I am still bullish on INTC here over the longer term but by selling out of the shares one vastly reduces the amount of capital in the trade and essentially reduces the total net debit of the trade down to $65 bucks total.

    The MVAR now on the trade really allows one to outperform INTC henceforth.  With $65 bucks total net debit and the risk of being assigned shares at $17.50 the MVAR in the trade is now $3,565 (1750+1750+65) with a maximum possible return of $400*5 = $2,000 - 65 = $1,935 with only $3,565 at risk (and only at risk if INTC < $17.50).  Thats a return of 54.28% on INTC if INTC closes at $25 on Jan 2012 expiration.

    Not to shabby?

    One can as mentioned in the 4/11 article now start to "resell" weekly $20 puts if INTC pulls back.  It should be the same 2 puts or 200 shares.  If one is a bit cautious of a broad market pullback (which is possible) one could not sell weekly and sell a bit longer dated puts at $20 or below to reenter into the same 200 shares sold above $20.80.

    I mention $20.80 as that was roughly the last trade I saw in afterhours and one had a good chunk of time to sell above that as over sixteen million shares traded.

    I hope others have took advantage of this trade and are reducing risks/taking profits while you have the opportunity as by taking profits your keeping the same upside we set out for in the 4/11/11 article but are reducing the risk dramatically while reducing the costs for the upside. 

    I havent had full time to digest and analyze the call and all of the numbers as they matched my initial premise and have a good return in less than 10 days which I am always partial to taking and moving on.

    Its part of option trading to reduce risk and take profits when they quickly appear as we already have the upside now locked in place thanks to the previous trade.  Also with options there is always the ability to enter back into trades again if one is patient. 

    One last reason as to why I am especially quick to take profits and reduce risk and be patient is that if one looks at INTC post earnings share price.  You usually see the highest prices right after a good earnings beat and have "typically" given back those gains (normally 4-7%) over the next week or so.  This is yet just another reason I took profits and would take profits on this trade structure. 


    Disclosure: I am long INTC.

    Additional disclosure: Long some remaining calls & short some puts no longer long shares
    Themes: Options, Risk Management, INTC Stocks: INTC
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