First Quarter Earnings Options Logbook 2012

It was a few hours before Apple's [AAPL:NSD] first quarter earnings report for 2012 and I wrote on my Facebook status suggesting option traders consider writing a 495 put and 630 call on the weekly option; it was the April 27, 2012 expiration at the time. The stock was trading around $560 pre-earnings report and the trade implied the stock would move less than 11.5 per cent at the most in any direction by Friday. My colleagues and friends recognized the risk of the trade which prompted a short debate.

It was pointed out that writing naked calls as an investment strategy will not always work in your favour. That person is correct, but no investment strategy will either. Buy-and-hold strategies have failed for many investors and 95 per cent of day traders don't make money either. Mutual funds have been ripping people off for decades and other instruments are yielding a return less than inflation. So, I thought it was unfair to single out naked options as an unfavourable investment style. Fortunately for me, the Apple options expired worthless and I was able to reap the monetary reward and some bragging rights.

Following Apple's earnings, I decided to disclose all trades dealing directly with earnings and post them here. The point is to show that writing options with proper risk management can and will always work in your favour 9 times out of 10. It's not for everyone and if you miscalculate your break-evens and ranges, you could easily lose the shirt off your back, along with the rest of the closet. Statistically speaking, 93 per cent of options expire worthless, according to the Chicago Board of Options Exchange (CBOE); those are very good odds in the writer's favour. Below are the trades in chronological order starting on April 10, 2012 (Alcoa earnings typically kicks off earnings seasons) and ending May 25, 2012 (six weeks later). Green indicates a profit at expiration and red indicates a loss at expiration. I will in this instance use my real dollar figures to provide better insight on cash flow.

JPMorgan & Chase (JPM)
Trade Date: April 10, 2012	Reporting Date: April 13, 2012 BMO
Closing Price Pre-Earnings: $44.84	Closing Price Post-Earnings: $43.21
Sold 5 45.00 calls at $0.25, sold 5 40.00 puts at $0.11; expiring April 13, 2012
JPM finishes week at $43.21
Net profit of $147.50 on $6,670 margin or 2.21% return

Intel (INTC)
Trade Date: April 16, 2012	Reporting Date: April 17, 2012 AMC
Closing Price Pre-Earnings: $28.47	Closing Price Post-Earnings: $27.95
Sold 10 30.00 calls at $0.29, sold 10 27.00 puts at $0.12; expiring April 21, 2012
INTC finishes week at $27.60
Net profit of $365.00 on $6,630 margin or 5.51% return

Qualcomm (QCOM)
Trade Date: April 18, 2012	Reporting Date: April 18, 2012 AMC
Closing Price Pre-Earnings: $66.99	Closing Price Post-Earnings: $62.57
Sold 5 70.00 calls at $0.38, sold 5 62.50 puts at $0.19; expiring April 21, 2012
QCOM finishes week at $62.25
Net profit of $111.26 on $8,995 margin or 1.24% return*
*Note: In-the-money put closed on April 21 at $0.25

Apple (AAPL)
Trade Date: April 24, 2012	Reporting Date: April 24, 2012 AMC
Closing Price Pre-Earnings: $560.28	Closing Price Post-Earnings: $610.00
Sold 1 630.00 calls at $1.14, sold 1 495.00 put at $1.25; expiring April 27, 2012
AAPL finishes week at $603.00
Net profit of $112.26 on $10,280 margin or 1.09% return*
*Note: Closed call on April 25 at $0.83 to free margin for other trades, profit would have been $216.50 or 2.11%

Las Vegas Sands (LVS)
Trade Date: April 25, 2012	Reporting Date: April 25, 2012 AMC
Closing Price Pre-Earnings: $58.78	Closing Price Post-Earnings: $56.97
Sold 3 62.50 calls at $0.35, sold 3 55.00 puts at $0.55; expiring April 27, 2012
LVS finishes week at $55.87
Net profit of $242.50 on $3,816 margin or 6.35% return

Amazon (AMZN)
Trade Date: April 26, 2012	Reporting Date: April 26, 2012 AMC
Closing Price Pre-Earnings: $195.99	Closing Price Post-Earnings: $226.85
Sold 2 215.00 calls at $0.60, sold 2 175.00 puts at $0.80; expiring April 27, 2012
AMZN finishes week at $226.85
Net profit of $1,534.05 on $9,098 margin or 16.86% return*
*Note: I took assignment and shorted the stock and closed it several weeks later.

Visa (V)
Trade Date: May 2, 2012	Reporting Date: May 2, 2012 AMC
Closing Price Pre-Earnings: $122.19	Closing Price Post-Earnings: $116.41
Sold 2 125.00 calls at $1.16, sold 2 120.00 puts at $1.25; expiring May 4, 2012
V finishes week at $117.79
Net profit of 18.51$ on $6,938 margin or 0.27% return
Note: In-the-money put was closed at $2.10 prior to expiration

In summary, the net income generated on the nine closed and profitable trades equated to $997.03 over five weeks. That profit is after commissions and SEC Fees, but before taxes. Only one trade generated a loss, a substantial loss of nearly $2,100 in fact, which would have created a loss of roughly $1,100. Fortunately, I had enough margin to take assignment and short the shares. The stock is now in a profitable position of over $400, plus the net option premiums received was $257.00, and I had also written covered puts to hedge the trade. I may consider disclosing future earnings plays to provide a detailed history and log of the potential profits and losses that occur. If this were to happen, it will be available in a future link in the top navigation bar.

Disclaimer: As always, writing naked options is considered a higher risk trading strategy and should not be available to all investors. Please discuss this with a financial professional as it can pose serious financial losses if not managed properly.