Second Quarter Earnings Options Logbook 2012

Second-quarter earnings unofficially kicked off with the usual Alcoa (AA) reporting on Monday July 9, 2012. Over the next six weeks, the remaining large cap stocks will report their own earnings reports. And as promised in the last quarter, I will keep a record of all the trades I implement with respects to an anticipated earnings report.

Total earnings for the season: -$550.18.

Wynn Resorts (WYNN)
Trade Date: July 17, 2012	Reporting Date: July 17, 2012 AMC
Closing Price Pre-Earnings: $97.36	Closing Price Post-Earnings: $96.25
Sold 2 105.00 calls at $0.53, sold 2 90.00 puts at $0.58; expiring July 21, 2012
WYNN finishes week at $97.31
Net profit of $180.51 on $4,900 margin or 4.02% return
Note: Options closed early to free margin for other trades

Qualcomm (QCOM)
Trade Date: July 18, 2012	Reporting Date: July 18, 2012 AMC
Closing Price Pre-Earnings: $56.05	Closing Price Post-Earnings: $58.44
Sold 5 60.00 calls at $0.23, sold 5 50.00 puts at $0.20; expiring July 21, 2012
QCOM finishes week at $57.68
Net profit of $182.50 on $7,000 margin or 2.61% return

Netflix (NFLX)
Trade Date: July 24, 2012	Reporting Date: July 24, 2012 AMC
Closing Price Pre-Earnings: $80.39	Closing Price Post-Earnings: $60.28
Sold 2 100.00 calls at $0.92, sold 2 65.00 puts at $1.10; expiring July 27, 2012
NFLX finishes week at $58.90
Net loss of $1,233.49 on $5,578 margin or 22.11% loss, excludes roll down on call option
Note: NFLX put closed at $8.00 on Thursday to free margin

Las Vegas Sands (LVS)
Trade Date: July 25, 2012	Reporting Date: July 25, 2012 AMC
Closing Price Pre-Earnings: $37.51	Closing Price Post-Earnings: $36.41
Sold 5 41.00 calls at $0.26; expiring July 27, 2012
LVS finishes week at $36.79
Net profit of $113.76 on $4,291 margin or 2.65% return

Amazon (AMZN)
Trade Date: July 26, 2012	Reporting Date: July 26, 2012 AMC
Closing Price Pre-Earnings: $219.20	Closing Price Post-Earnings: $237.32
Sold 2 250.00 calls at $0.71, sold 2 180.00 puts at $0.58; expiring July 27, 2012
AMZN finishes week at $237.32
Net profit of $223.00 on $8,767 margin or 2.66% return

Mastercard (MA)
Trade Date: July 31, 2012	Reporting Date: August 1, 2012 BMO
Closing Price Pre-Earnings: $436.57	Closing Price Post-Earnings: $427.20
Sold 1 460.00 call at $2.50, sold 1 405.00 put at $1.36; expiring August 3, 2012
MA finishes week at $424.13
Net profit of $309.02 on $10,346 margin or 2.99% return
Note: We closed the above positions and tightened the strangle to $420 to $435 more than doubling our profit, but this was a post-earnings trade.

Dell (DELL)
Trade Date: August 21, 2012	Reporting Date: August 21, 2012 AMC
Closing Price Pre-Earnings: $12.34	Closing Price Post-Earnings: $11.68
Sold 10 13.00 calls at $0.30, sold 10 12.00 puts at $0.35; expiring August 24, 2012
DELL finishes week at $11.26
Net loss of $177.49 on $3,390 margin or 5.24% loss

Hewlett-Packard (HPQ)
Trade Date: August 22, 2012	Reporting Date: August 22, 2012 AMC
Closing Price Pre-Earnings: $19.20	Closing Price Post-Earnings: $17.64
Sold 10 20.00 calls at $0.26, sold 10 18.00 puts at $0.16; expiring August 24, 2012
HPQ finishes week at $17.58
Net loss of $37.49 on $4,825 margin or 0.78% loss

As we have discussed, most option traders would much rather sell an option going into an earnings call since the premiums are significantly higher. Historically, selling out-of-the-money options yields better results than going long an option because the time value disappears as earnings are reported.

The trades above do not include roll ups and roll downs executed after the earnings report. These rolled trades would impact the profits positively but have been removed from the above trades. An assigned option closed after the report would be included.

High-Beta Netflix and Amazon

Playing the Expiry: July 13, 2012

7-Eleven Day (July 11) brings free Slurpees to everyone around the world. And today, it brings free options suggestions.

A strangle on Netflix [NFLX:NSD] is back in play. After rising 20 per cent in three days at the start of July, the stock has flagged and traded sideways. The flag pattern may break out before the week, but that shouldn't stop risk-takers from making that bet.

The stock is $82.50, trading right smack in the middle of the spread. The 80 put is slightly under valued at $0.73 compared to the call at $0.84. The maximum return for this strategy would be $157 per pair. Total margin required is approximately $4,000. The maximum return is 3.93 per cent. The break-even range is $78.43 to $86.57 or downside and upside protection of 4.93 per cent.

Amazon [AMZN:NSD] continues to rise and fall in the low $200-range. Starting the week above $224, it has fallen with the market and recently touched $217. However, if the market is truly sideways as claimed, Amazon should move above $220 after hitting support in the current range. The 215 put is about $1.20. Total margin is about $6,250. Maximum return is 1.92 per cent. The strategy protects a fall of 1.47 per cent post-3 per cent decline from Amazon this week. That suggests Amazon has a low probability of falling further in the shorter term.

Disclaimer: I have implemented the above strategies. I am also short Amazon. Writing naked options is not for everyone. Always consult a professional before making uninformed decisions.