Look Beyond Next WeekIt is certainly alluring to buy cheap options hoping to get earnings-day action, and I know every quarter always delivers some jackpot payoffs. I don't want to discourage anyone from being in it to win it, but be selective. Although buying options is certainly less risky in dollar terms than buying or selling the underlying shares, the price of these short-term options tends to be inflated as the implied volatility gets pumped up prior to the earnings release. This means that unless you are really right in predicting a sizable move, these bets usually don't amount to anything more than a lottery ticket, which often results in losing the full purchase price. That's why in many instances it makes sense to look beyond employing some longer-dated options; they can offer not only better value, but they also supply enough time for the investment thesis to play out. In addition, longer-dated options allow for making adjustments during the position's life that can lock in profits and contain losses.
F5 NetworksF5 Networks ( FFIV) is scheduled to report Jan. 19. The company is expected to earn 21 cents per share, which would be a 90% increase over the year-ago period.
|F5 Networks |
A calendar spread makes sense here