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.

A Prayer to a Lost Soul

People change. You wish them to change for the better. But it seems that is rarely the case. What's important is how you react when their life has gone astray. Do you let them live their own life or do you intervene and guide them through the one you thought they deserve? It is at this crossroad that brings to light the kind of friend they are to you and you are to them.

I rarely discuss topics unrelated to money on this blog, but friends laugh with you, create memories with you, and endure with you. I decided to write about my thoughts on friendship because I've started to see a friend of mine, one I thought I really cared about, drift away from me and into a life that I don't much respect. What's worse is that I've been able to do nothing as she changed and it made me question who I am. I try to meddle as little as possible and let people learn from their own mistakes. It is how people grow, but it's hard and frustrating having to witness someone you really care about lead down the wrong moral path.

Most of us are afraid to confront our friends because we lack the courage to face the issue head on and we lack the knowledge to tackle the problem. The reality is that confronting your friend often results in conflict and the end of a friendship, but I pose myself the question, "What friendship is left when the transformation is complete?" A non-existent relationship and the wasted life of an awesome person that made my world brighter.

People will tell you that they mean a lot to you and when you lent all those ears and let them lean on all your shoulders, you learn that it was all for naught, all in vain if you will, as their life unfolds and withers away into what it potentially will or has become. We are all given an equal chance to make our lives positive and to be role models to others, but people are greedy and selfish and they crave money, power, drugs, and lust. Why can't we all crave respect, humility, love, and dignity?

Dear friend: just five months ago, we talked about your future; we talked about fun things like boys, movies, and places to visit. And remember when we used to hate those that do the things you do now? Because I sure do. Honestly, I can't say for sure if my suspicions are accurate, but from the words of others, those that I trust and respect, it appears they are true. I won't say names because this applies to so many others, but I want you back. I want you to change to the girl who saw the world as a stage and wanted to be an interior designer, a girl who started a tradition of gelato every month with me, a girl who punched me when something really cute happened beside us.

Most of you won't have made it to this paragraph, but I needed to use this as a catharsis, as a way to figure out what's going on in my head. It is a shame to see a life possibly wasted yet again and to see that the people she surrounds herself finds no inspiration to be better people. I want her to change back to who she used to be, but people are often set in their own decisions.

The girl I knew two years ago is long gone and the body that remains is just an empty vessel to me. I care enough to get you back on track but I feel I was too late in recognizing who you have become. I feel that I've come to the same solution that I've always resorted to and that is if you choose to ask for my help, kid, I'll be there before the sun peaks above the horizon, but if you decide that the path you have taken is best, and you feel that I shouldn't have known about it from the start, then the respect and admiration for my wisdom you have shown me was devoid of any maturity that I once thought existed in you.

I surround myself with people who will inspire me and be inspired by me. I surround myself with people who have identified their goals and wishes, things that they are passionate about, people who love to be alive and make every minute count because they know it is limited, and people whose legacy will survive because I will tell others of their wonderful soul. But the person you may become is not someone I would admire and someone I would never surround myself with. Are you ready to lose me and the people that are on this side of the track who have laughed, created, and endured with you?

I would much rather find out I'm entirely wrong and you are offended by my misleading information and intuition. I would love to know you stayed true to yourself, that your strength in character was underestimated, and you are same person I appreciate having in my life. Honestly, I really would.

Unique Tactic on Las Vegas Sands

Las Vegas Sands [LVS:NYSE] is the world's largest casino company by market cap. It operates hotels worldwide, including the Venetian in Las Vegas, USA, the Marina Bay Sands in Singapore, and the Venetian Macao in Macao, China. Next week on Monday June 18, 2012, the company will go ex-dividend and pay shareholders $0.25 per share.

This dividend occurs after an options expiry and provides a unique opportunity for traders. But first, let's examine the entire situation here to get a full understanding of the scenario and settlement dates. If you understand settlement, skip down three paragraphs.

Normally, if one wished to receive the dividend, an investor must purchase the stock before the ex-dividend date. In this case, the investor must buy it on Friday June 15 at the latest to receive the dividend. He or she can sell the shares on the 18th and maintain their rights to the dividend as well. By purchasing the stock on the 15th, the shares would settle three business days after, which is Wednesday June 20.

Settlement for an option is significantly different. Regular buys and sells settle in just one day. Assignment is two business days. Example, if I purchased a call option on Monday, it would settle on Tuesday. However, if I decided to exercise the option on Wednesday, it would settle on Friday. I could also wish to exercise the option on Tuesday and have it settle on Thursday, just like if I purchased the stock on Monday instead of the option. This is very important to know because the following strategy could get very confusing.

Now, the most important date in this entire scenario is not the ex-dividend date, but the record date or date of record. Las Vegas Sands would deem the record date for its dividend Wednesday June 20. This means that the shares must be in the account and have settled on this day for an investor to receive a dividend. With all that information provided, and hopefully it makes sense, how can one attempt to receive two payments from the LVS options?

If a trader wrote a put, they would receive a premium. Now, if the stock fell below the strike price on Friday, there is a chance the buyer of the put exercises their option and sells the stock to you at the strike price. The assignment would settle on June 20, which means you would be entitled to the $0.25 dividend as well.

The stock is currently trading at $45.21 and the June puts are priced as follows:

Strike Price	* Last Bid
46.00	$1.07
45.00	$0.52
44.00	$0.22

What you choose to write is your choice, but it is very rare for an opportunity with a silver lining like this to arise, that is, an unwanted assignment would provide income as well. Unlike most weeks, we must consider that the in-the-money put may not be assigned in the account of the writer, since the owner of the put, who may have bought it as insurance if the stock falls, may wish to receive the dividend instead. The stock has also shown good support at $45 and the stock could rally shortly after wards like it did in March after the dividend payment.

As with all trades, there is always a risk of losing your entire investment. The market is currently in a bit of turmoil and there is a chance these shares could fall well below your strike price. Take into consideration your financial strategy, needs, and tolerance.

Range Bound Stocks to Capitalize On

Playing the Expiry: June 8, 2012

I will make this short and simple. Amazon [AMZN:NSD] has been trading in a range between $205 and $220 since it fell below $220 support on May 18, 2012; the support was the initial low price after earnings. With the market looking to recover from a near correction, the market could start heading sideways before traders and investors build confidence in the world's economy and market.

Taking a look at the Amazon June 8 weekly options, the 220 calls are selling for $1.00 and the 215 puts are selling for over $1.50. The stock is trading in and around $217 at the moment, so a credit spread looks promising. Total premiums received per contract would be at minimum $250 with margin required at no more than $6,300. Total earnings potential is at least 3.97 per cent with a break even range of $212.50 to $222.50. This provides downside protection of 2.07 per cent and a rise of 2.53 per cent.

In the event either options are in-the-money on Friday, consider rolling out the option or taking assignment, as it appears the stock will be brought back into the range determined above.

Another range-bound stock has been Baidu [BIDU:NSD]. The shares have had trouble rising above $120 while giving good support around $115. The weekly options are not as juicy as Amazon's, but a trader with less margin could consider Baidu instead. The 120 call is trading around $0.82 while the far out-of-the-money puts are only $0.34. This would provide income of $116 per pair for the next two days. Note that Baidu is most likely at 50% margin, so margin required is about $6,000. This would earn about 1.93 per cent return if both options expire worthless. The break even range is $113.84 to 121.16 or a drop of 4.33 per cent to a rise of 1.82 per cent.