Alcoa (AA, $8.22, up $0.28) and Yum Brands (YUM, $65.45, down $5.85) reported their numbers after the close yesterday to mark the unofficial start to the 3Q earnings season. While their earnings matter, we gave the kickoff title to Dow component JPMorgan Chase (JPM, $50.97, up $0.10) as they will be the first blue-chip company to report their numbers on Friday.
While earnings are announced every month, the major companies report in the first month while the other follow suit over the next 2 months based on their fiscal year. Nike (NKE, $70.76, up $0.48) recently announced their numbers and would have been the perfect candidate to kick off the season but they are on a different cycle and aren’t due to report again until December.
We have done well playing earnings this year but the current environment makes these types of trades a little more risky. A 5%-10% move in the right option can mean a 200%-300% return with the right call or put option but it can also mean a 100% loss if shares move against you. The near-term options on these types of trades are really cheap but some option traders shy away from trades like this. However, if they are managed right, one winning trade can pay for 2-3 losers. The key is leverage and to try to trade the same dollar amount or a certain percentage of your portfolio. For all of your trades and not to go all-in on just one trade
We would have taken the Yum Brands trade but we are already in an earnings trade for Thursday and we don’t like to “overload” our portfolio with these types of trades. Still, the 8% pullback in Yum’s stock was a windfall for the option traders that went short by using put options. The company reported a disappointing quarter that was written all over the wall following the chicken scare in China.
The October 65 puts (YUM131019P00065000, $0.93, up $0.66) have surged 244% and have traded to a high of $1.12 after closing Tuesday’s session at 27 cents. The November 65 puts (YUM131116P00065000, $1.81, up $1.23) is up 212% after closing yesterday’s session at 58 cents.
The earnings season will be in second gear by next week and we will be winding down a few of our leftover trades from July, August and September. We have also closed a number of trades this week, including a NPS Pharmaceuticals (NPSP, $29.17, down $2.04) LEAP option trade today in our Weekly Wrap Portfolio for a 182% win.
This gets our Closed Trades Track Records for 2013 to 114-54. The Weekly Wrap is now a stunning 38-3 for 2013 (82-5 since 2011) and is designed for traders that want to use options with less risk. Our success rate is nearly 70% for trading options and has been for 6 years! For 2013, we have turned a $10,000 portfolio into nearly $30,000 by keeping our trades between $1,000-$2,000 per position. Some of our subscribers trade less than this while other trade more. Our point is you need to be on board with both newsletters to maximize your profits.
If you do not have time to trade our newsletters, let our auto-trading partners do the work for you. They will take all of our trades for you in your account and the service is at no cost to you. It is a win-win deal.
There are no updates to give on the zombie front as the government shutdown rolls on for a ninth-straight day. We mentioned we have a few put option trades from August that will protect us from a steeper sell-off and while the air is cloudy, there could be some sunshine by the end of the week if the knuckleheads in DC bite the bullet and get something done.
We will be in PERFECT shape to open up the playbook by the end of next Friday as we have closed a number of trades to prepare for the mother of all selloffs or the possible father of all rallies.
We have seen some choppy action today and as we head to press, the Dow is up 34 points to 14,810 and will be trying to hold 14,800 into the close. The S&P 500 is at 1,657, up a point, and will be trying to clear 1,660 into the bell. The Nasdaq is down 16 points and needs to hold 3,675 while a positive close above 3,700 would be better. The Russell 2000 is off 4 points to 1,043 and needs to hold 1,040. The S&P 500 Volatility Index is lower by 0.04 to 20.30 and a close below 20 would be bullish.
Subscribers, check the Members Area for the updates and we will be back in the morning with a full report.
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