As Jesse notes over at Cafe Americain, it’s shenanigans central today.
We are mostly watching the action with a detached interest. As I said to Members in yesterday’s morning Alert: “Tomorrow we have CPI, Business Inventories, Industrial Production, Empire Manufacturing (which was awful last month) and Michigan Sentiment and then the 3-day weekend so cash will be comforting until Tuesday at least!” Yesterday was an excellent day to take the money and run on our bullish positions, even though we did finally make our levels, my final word in that Alert was: “Be very careful today, I still feel like this whole thing can snap on one bad news story.”
We did take earnings spreads on JPM and INTC, both of which seem right on target at 7:30 (see this morning’s Alert for adjustments) with INTC giving us the strong numbers we expected and JPM doing well, but not well enough to live up to the hype.
Earnings season is like party time for options traders, especially on expiration week where we can take advantage of low premiums on the things we buy while still selling high, earnings-inflated premiums on the things we want to sell. The INTC trade was taking the Feb $22/23 bull call spread for .27 (a cheap way to make $1) and reducing our basis by selling 1/2 that number of Jan $22.50 calls for .12 (a ridiculous price for a call that was $1.20 out of the money when we made the trade in the morning but we only sold half, just in case!) and also selling the Feb $19 puts for .17. Those we sold the full amount of as we REALLY don’t mind having Intel put to us at net $19.04 as .17 and 1/2 of .12 = .23 off our net .27 purchase of the bull spread so we’re in for a grand net total of .04 with the upside potential of making $1 if INTC makes it to $23 by Feb expirations. Even if we only cash out our Feb spread for .12 (less than half of what we bought it for), that’s still a 200% profit on the net spread! This is why we LOVE earnings season!
Our Trade Idea for JPM was in that same 10:47 Post and in that one I said to Members: “JPM – Great Expectations so I like the $44 puts for .55, selling the Feb $41 puts for .52 on the premise…
