I agree. That's why when you see a move like *CRM you need to let it run. But even with 5-7% move you can probably still make some money.
Now, if you buy next month, you can hold for few more days, and it might still go a bit higher. Of course more data is required, and it is still a speculative trade, so allocation should be probably no more than 1% of the account value, but couple of big winners should still make it profitable in the long run.
Previous earnings surprises and price reactions. Both of these moved big after previous earnings. Direction can be more of a guess, but lots of positive surprises this earnings season, so fair guess.
You mean the most I can lose is the debit if I close today, no matter what? That seems like fantastic risk/reward for any earnings play. I mean in many cases you can do it for close to breakeven, so your risk is close to zero, and in case of 7-10% move, you make 300-400% return on debit or 40-50% return on margin. Why not to do it on any stock that have history of failry big after earnings moves?
No, risk is not zero. For close to no movement, and moves in the "wrong" direction, you will lose the full debit. The risk of the entire margin is only if you hold it many days, or IV collapses to zero.
Yes, I understand that, but if the debit is really small and this is your maximum loss, that's still an excellent risk/reward. Definetely much better than buying straight calls.
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OOps, PAY is tomorrow AMC. I guess there's another day left to get in on this one.
Aug 23 2010, 16:32