Reviews earnings on options, Product details
Simple strategy reaps massive profits on earnings
Long calls fix the price where a stock can be purchased. They typically gain value when shares rally. Long puts are just the opposite, fixing the level where investors can sell a stock. They usually gain value when prices decline.
Long Calls Can Replace Stock One way traders can use options is simply buying calls instead of shares. You might worry about a disappointing earnings report or bearish analyst notes before the announcement next Thursday, July Netflix NFLX options chain, highlighting contracts mentioned in this post.
However, it would behave like 46 shares because the options delta is 0. This approach could profit if NFLX keeps climbing into the report but lose money if the shares decline.
Time decay is another risk because options usually lose value after big events like earnings. Vertical Call Spreads Can Limit Cost Traders wanting to hold reviews earnings on options position through the report may want to consider vertical call spreads.
Say you think NFLX will jump after its earnings report, rather than climb beforehand.
That could be a percent gain from the stock moving less than 4 percent. Vertical spreads may seem complicated because they involve more than one contract.
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There are two possible cases. An investor might own NFLX shares. He or she could be bullish on the stock and hope it will rally on earnings.
The Basics of Options Profitability
But they still want to guard against a selloff. A vertical spread with puts can be an inexpensive way to hedge downside risk while still having upside exposure.
Alternately, a speculator may believe NFLX is overvalued after surging 73 percent from its March low. They could also use a bearish put spread to position for a drop. This reviews earnings on options be safer than short selling the stock, which has infinite risk.
Covered Calls Help Manage Risk Covered calls are the last options trading strategy covered in this article about risk management during earnings season. This requires you own at least shares of the company in question. The social-media company is scheduled to announce results after the closing bell on Tuesday, July Covered calls let you isolate the time value in the options and profit from it.
This can also provide a hedge because the extra money collected by selling the calls can offset a drop in the share price. Pros and Cons of Covered Calls There are two risks to covered calls.
That can expose you to declines in the share price. Second, profits to the upside are capped.