Earnings Monday: MCD

I'm loving it!  The all-day breakfast menu, the 2 for $3 or 2 for $5 dollar menu has McDonald's crushing earnings.  At least that is what the news is saying.

I got in late last week, mainly because my family eats out a lot and because CMG crushed it last week.  I picked up 3 MCD 155 calls expiring 5/04 on the cheap last week for about $5.40.  I call this cheap because compared to my AMZN last week, this is peanuts.

Today, MCD was up close to 6% ($9+).  I sold it around noon and made about 5.70 per contract.  Not bad considering I held it for less than a week.

SPY was up in the morning but closed negative.  We are entering a very tight range and it can go either way.  We shall see as the rest of earnings and May comes along.

In any case, be very careful and happy investing!

Earnings Friday: AMZN

After funny remarks by the POTUS, AMZN stock was pummeled the couple weeks approaching earnings.  Then on Tuesday even when GOOGL posted good earnings, a sell-off occurred, AMZN included.

But that hit provided the perfect opportunity to load up on some options.  Of course due to the size and nature of the stock, I only bought one call.

AMZN dropped back to 1450s on Tuesday.  It went even further but found support around 1420 on Wednesday.  (Rule #1 Find good setups, buy around support).   I went in with a call when it hit 1450s again.  I bought a 1440 call for around $57 (Rule #2 Buy ITM calls, around .7 delta).  Because it was over 5% of my portfolio, I snagged only one.  (Rule #3 Keep positions small relative to portfolio).

I ended up holding through Wednesday.  It hit my breakeven on Thursday around 1495s and then beyond touching around the 1520s.  By the end of the day, I had another scenario similar to GOOGL earlier this week.  I had a choice to make:

1) Do I sell for a profit?  This time the profit was $30 or about 70%.
2) Do I hold out for a larger profit, but risk losing $57 if it goes south after earnings release (like what happened to GOOGL)?
3) Or sell a call at a higher strike to reduce my risk and increase my gains?

This time I was a little bit more confident to AMZN earnings report.  I ended up selling the AMZN 1540 call for around $35.

So bottom line, with the spread I was about to decrease max loss, decrease my breakeven, and increase profit:

Max Loss = $57-$35 = $22
Breakeven = $1440+$22 = $1462
Max Gain = $1540-$1462 = $78










So with my AMZN call spread 1440/1540, I increased my profit from $30 to $78.  I decreased my breakeven from $1495 to $1462.  But I did risk losing my $30 profit I had chose option 1 instead.    I would also cap my profits to around $78, meaning I would miss out on any further gains if AMZN went past $1575.

In any case, given the market conditions and the jumps FB had the day before, I chose option 3.

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Well of course, to my surprise, the market opened up huge and AMZN leaped open around $1630.  I missed about $55 of extra profit, but in reducing my risk I was able to make a greater gain.  And at the end of the day AMZN "retreated" to around $1572, just as I had predicted.  Anyways, long story short, I made everything according to the plan.

Some lessons learned: 

1. Don't get greedy.

2. Stick to your plan and sometimes you get more than you ask.

3.  Create a call spread to increase earnings and decrease risk

4.  Don't sell the call spread too early, stay one sided as long as possible.

Earnings Monday GOOGL

I bought two 1010 GOOGL call expiring APR 27 for about $45 (about $9000 initial investment).  I'm well in the money making about 80% profit or about 7k.

My question is what should I do before earnings report?  I gave myself three options:

A) Sell and put it to work in something else like AMZN, FB, TWTR, etc.

B) Hold and let it run

or

C) sell an at the money Apr 27 call for another $30, about doubling the current profit.

I decided that option B was too risky. I didn't want to lose a winning position especially to earnings.  I've been burned before by holding through earnings.  I ended up doing option A and C.  I sold 1 call and made about $35 on the call or about $3500.  The second call, I decided to sell an at the money call at strike 1080 expiring Apr 27 for about $30, in essence creating a call spread and doubling my profit potential plus limiting my overall risk.

Given the short time duration and the earnings coming out at the close of market, this option would have a huge decay in premium right after earnings.  AND my max loss was now reduced to $15 AND my max profit was increased from $3500 to now $6500 as long as GOOGL stayed above 1080.  Judging from the after market action, I think I made the right decision.  What would you have done?

Anyways, just another day in the office! Have a great day and happy investing!

Trade of the week: AMZN GOOGL

These two behemoths of FANG is heading towards earnings next week and trying to buy options is no laughing matter.

I picked up the 1010 Apr 27 GOOGL Call and the 1432.5 Apr 27 AMZN Call.

Up nearly 80% in GOOGL and 70% in AMZN.  They are now breaching 30% of my portfolio which is good since they are booming right before earnings.

This was my first purchase of AMZN.  I still remember them when they were $40 back in the early 2000s and I said they were too expensive... they hit $80 and they were still expensive.  Now I'm buying a call worth $6k.  I guess I have a weird idea of what expensive is.

GOOGL was hitting the 1048 resistance line for multiple days last week and with low volume.  I wasn't sure if they would break through, but with each successive higher low, it became more and more apparent that they would make a run up before earnings.  My hope is for GOOGL to retest 1100 and even 1140 before earnings.

As for AMZN, I didn't have much time to think about it.

With the Trump tweets, AMZN dropped nearly 11% to 1360.   It took them 3 days to return back to resistance at 1458, then bouncing back to its 50MA, tested and retested that resistance level.  I bought the breakout on 4/17 knowing that it will only go higher.  One more week until Earnings.  My hope is for AMZN to retest 1600 or even 1675 before earnings.

All cylinders are rolling ahead.