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Selling
Into Earnings Page 2
(1999) |
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After doing some research in Yahoo we noticed that this
stock has a tendency to sell off following
its earnings announcement. In the chart on
the previous page you will notice some key
indicators that were highlighted. The
summary below is representative of the
steps that went into this potential option
trade.
- The first step was to locate the
stock and investigate its prior
earnings announcement dates looking
for a history of weakness. We then
would have placed the stock on a watch
list and monitored it using a
short-term chart (15-30 minute bars).
Point A on the chart: the earnings
were scheduled to be announced after
the closing bell. You will notice some
weakness in the stock as the price
begins to decline on increased volume.
Point B on the chart: the morning
after the earnings announcement. Even
though they announced better than
expected earnings the stock continues
to sell of on heavy volume (indicated
by point C). At point B the February
400 put option could have been
purchased for approximately $5,300.
This trade would then have been
monitored and exited at the end of the
day on the 13th when the
downward momentum began to slow (point
D on the chart). At this potential
exit point the February 400 put option
would have been worth approximately
$6,500 (a potential profit of $1,200).
-
- Quote.com is a great resource for
live dynamically updating stock charts
that can be used for monitoring this
type of short-term trade. Click
here to visit Quote.com.
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