This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Better Way to Play Apple Earnings

The following commentary comes from an independent investor.

As an investor who prefers to use options to make long-term, instead of speculative, trades, I often cringe when I read articles touting strangles, straddles, other more complicated spreads and, worse yet, directional bets on volatile stocks.

I say "worse yet" because at least when you put on a non-directional spread, you give yourself a fighting chance if you're wrong. Going long a call or a put into an earnings report often mixes a recipe for disaster.

Unless I am writing a call or a put, I rarely execute options trades right in front of an earnings report, particularly on potentially volatile stocks. If I am long an option prior to a quarterly call, I make sure I go in-the-money and/or use long-dated contracts so that I have a mix of intrinsic value and time to hang my hat on if things go south.

In this article, I discuss a pair of options strategies that make the most sense for long-term investors looking to collect income and possibly establish a long-term position in a stock around earnings. It's important to consider the intent of the articles I write, specifically ones that deal with options. The trades I outline will not work for all investors; instead, I hope to demystify the mechanics of relatively basic options strategies so that you can use them on stocks suitable for your portfolio at a time that's right for you.

Covered Calls and Cash-Secured Puts

Although roughly 75% of my portfolio tends toward a buy-and-hold philosophy, often in dividend-paying stocks, I think most portfolios can and should make room for speculation and active trading strategies. An excellent way to work active trading into a long-term investment plan involves moving between covered calls and cash-secured puts, though not necessarily in that order. Earnings season can represent an excellent time to sell options because implied volatility often sends premiums higher ahead of a major event.

Let's consider an example. When using the following strategy, you must come to terms with yourself on several important qualifiers before executing the trade:
  • If you write a covered call, you must be content with the point at which you cap your potential profits.
  • If you write a covered call, you must be all right with the possibility that the stock drops below your break-even point on the trade, which would result in on-paper losses.
  • If you write a cash-secured put, you must be OK with the chance that the market price of the underlying stock drops below -- maybe even well below -- the strike price of the put you sold.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.99 0.00%
FB $99.54 0.00%
GOOG $678.11 0.00%
TSLA $148.25 0.00%
YHOO $26.82 0.00%


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Free Reports