By Don Fanstone, Member Kitchener/Waterloo User Group
Option Blog March 29, 2015:
Earnings Drive Stock Prices. Be Aware of Earnings Release Dates:
Companies that have a history of increasing earnings consistently, quarter after quarter, year after year; see their success demonstrated in the stock price, resulting in a stock graph that moves steadily, lower left to upper right.
Opportunities arise with earnings release dates.
Dollarama is a stock that I have followed for some time. Actively following winning companies, reading about new store openings, reading about rising sale prices of goods, (Now above $3.00), checking VectorVest scores and obtaining independent research where available gives clues to where the stock price may be headed. All of this is added to what is occurring on the VV stock graph, rising trading volumes, rising stock prices, new price highs and rising DPO values. With the earnings release date approaching, you have two choices, be aggressive and buy the stock or options prior to the earnings release date or conservatively wait until after the announcement. In both cases, you would prosper.
Dollarama announced on yahoo that fourth quarter and year end results would be released on March 25. On March 12, the DPO started a day by day climb higher.
On March 17, the 5 DMA started to move above the 10 DMA at a steeper angle. From March 12, every day was an “UP” day with a green column in volume. On March 16th, the stock hit a new Price high.
10 July 56 Call Options were purchased on March 16th at $8.80. Even though the announcement was imminent, the trading plan calls for buying time insurance, hence the July expiry. The stock closed at $63.77 that day.
The strike price of $56.00 came from the VectorVest’s Options Analyzer, being a delta of .80.
With the stock price rising each day, it appeared that the earnings announcement would be positive. On March 25th, the stock opened at $67.23 and climbed steadily. The Calls were sold at $13.40 for a gain of $4,600. (52%) The stock continued higher to $71.00 and retreated later in the day to $68.10. Money was “Left on the Table” when the option was sold, and that’s a judgement call when the trade is closed.
Option Trades since March 22th.
Bought:
5 SWKS Aug. 85 Call Options at $27.75 on Monday March 23rd.
Skyworks has been heading straight up; it was the VV No. 1 stock for the week, and VV suggested it was a BUY for Prudent investors. I had sold Aug. 75’s the Friday previous and had some insurance money to hedge. On Monday the stock had a red candle day, and a red candle on Tuesday. Not a good sign! On Wed. the market cratered and the stock dropped to $95.57, on Thursday it dropped further to $93.04. With SWKS having an RS of 1.44, a CI of 1.88, and a VST of 1.56, I chose to stay the course. Friday was a vindication day with a price rise to $98.83. Volatility such as this is only soothed by high VectorVest RS, CI, and VST values and time to get back on track.
Sold:
10 DOL July 56 Calls @ $13.40 for a profit of $4,600.
With the market in a Down/Down condition, I do not recommend buying Call Options at this time.
A trade at this time is to consider the advice of “Grin and Bear It”, the VV Strategy of the Week.
Sell Covered Calls on Stocks you own, either at the money, or one strike out, with a 30 day expiry. Option prices are not attractive unfortunately, do this only if the income received is worthwhile and you are prepared to be called away.
I encourage all to read Lee Lowell’s book “Get Rich with Options”, go to VV University and watch the Video on Options, and read Dr. DiLiddo’s article in the Views Manager under Special Reports, and attend the VV Options Course.
Understand Options Before you begin to trade, there is much to learn.
DISCLAIMER: Options trading involves risk and is not suitable for everyone. The information contained in this Blog is for education and information purposes only. Example trades should not be considered as recommendations. Options training is strongly recommended before placing any trades. VectorVest offers a basic options course online and occasional intermediate options workshops in Canada each year.
Thank you for sharing your ideas with us. As somebody just learning about options and seeing the value of trading options as part of a balanced investing strategy I’m learning a lot from your weekly insights. Again thank you for your weekly articles.
I’ve read Lee Lowell’s book. I really appreciated his advise to get the delta up by going DITM for calls. I liked his advise on selling puts, and i’m in the process of getting that ability on my brokerage account, but wondering if you sell many puts, and what your criterion might be for doing so. On high priced stocks, over $200, there are some good premiums to be made even if you go DITM….and don’t fly too close to the sun.
Thanks again for your blog, and advise.
Dorothy
Thanks Don for sharing your insight and walking us through your Dollorama venture. It was like following the play by play of an exciting detective investigation. I have almost completed reading Lee Lowell’s Get Rich With Options book. I love the way that man writes; He is very easy to understand. Its almost like having him beside you over a cup of coffee talking options.
I also appreciate you spending some time to share your Options experiences with us in this blog. I am studying diligently and I have almost worn out VV’s Option Analyzer trying to get a handle on the Options business. There is a lot of ideas out there by many people on how to trade Options. My strategy is to use VectorVest for stock analysis, read this blog and the Views in the VV program and use the Options Analyzer for assistance. There are also tons of books written on the subject.
I know there are lots of investors out there who would like to find out more about Options but are afraid to ask. Options have a stigma of being ‘scary and dangerous’. I was there a few months ago. Now with some concentrated effort and some good old fashioned studying, my mind has changed. I would like to see more discussions about Options included in some of the webinars presented to us. For sure the stigma would be lifted for many if they showed the interest. Knowledge is power. Knowledge could also mean some nice profits trading Options.
Thanks again Don.
Dorothy:
I have bought and sold options at various times and made a few dollars. I cannot claim to be an active Put trader, however, with VV indicating that a bear market may be imminent, I will be looking for opportunities to buy Puts to profit “on the way down.” Like most folks, I have concentrated on a market moving up as up-trending markets tend to last longer than down-trending markets.
Follow the Market Trend and you will profit in both up and down markets.
Selling Naked Puts is a good practice in a Rising Market.
Buying Puts in a good practice in a falling market.
Buying Call Options is best done in a rising market.
Selling Covered Calls is best done in a falling market.
There are attractive Out of the Money Puts on High Priced Stocks, just be prepared to be “Put To” if you do so.
Alternately, if you sell a Put and want protection, Buy a Put further out of the money to limit your exposure.
Thanks for your note.
Don
Warren:
Your comment is well taken about the Options Analyzer. I think that VV could add to it’s stable of videos that explain this tool more fully. I did ask Stan Heller about finding more detailed info about the Analyzer and will follow this up with him. He is a great resource for all of us.
Don
Hi Don
I find that there are 2 “Get Rich With Options” by Lee Lowell. The one that seems more available is the one that has a subtitle of “Four Winning Strategies” . Which one is the one that I need as a beginner options trader?
Thanks
Geoff
Geoff:
The copy I rec’d when attending the VV option seminar is the Four Winning Strategies. I will likely find the alternate copy and read it also. If you’re new to Option ‘Trading, I strongly recommend the VV Options Course
Don
Don
Thanks for the reply. I am taking the VV beginners’ option course as we speak .I’ll order the Four Winning Strategies right away.
Geoff