My brother (babaBrian and Internet Video of the Day) told me to add Google Analytics to this here blog and I'm glad he did. It's a lot of fun to see what brings people in. I don't particularly care how long they stay or what pages they visited, but the Google search information presented is fascinating.
For instance, since I've added Google Analytics, there have been 9 Google search referrals. In all the following, the quotes mark the keywords used and are not included in the actual search box. If you type in "earnings strategy" as a search, my blog is miraculously #1! I'm also the #1 result for "how to profit when option assigned." I'm #2-#5 on the rest so far ("google share implied volatility," "grmn strangle earnings," "implied volatility profiting earning seasons," "options assigned," and "svnt blog"). The financial posts are evidently the most popular. Perhaps I should get back to that topic again.
I can see how Google Analytics would be helpful for a serious website looking to bring in advertising revenue, track the sales process, or something similar. Mostly, though, I think it's just fun and interesting to see which random searches find you.
Showing posts with label GOOG. Show all posts
Showing posts with label GOOG. Show all posts
Friday, February 29, 2008
Tuesday, November 6, 2007
Small Company Earnings
HYTM was listed as releasing it's earnings yesterday, November 5. Instead, their expected earnings release date was pushed back until November 12. I think this is a phenomenon pretty much unique to small companies. I can't imagine Google, IBM, or Apple getting away with a week's delay in releasing financial information.
In fact, HYTM hasn't really gotten away with it. The past couple of days have seen HYTM drop down to $4.71 so far. Incidentally, this puts me fairly deep in the red. We'll just have to see what the implied volatility does after earnings. It may still be worth holding on to if I can still get >5% a month in options premiums. Or perhaps earnings will beat analyst estimates and I'll get my shares called away after all.
In other news, Garmin (GRMN) is down below $100 again. I think if I had $10,000 or multiples thereof, I would buy some GRMN shares and write more out of the money covered calls. Garmin seems to be down on fears of a TeleAtlas bidding war with TomTom (TOM2.as). However, I see this as both a good move and temporary. Garmin has about $1B cash on hand and is worth >$20B, while TomTom probably has less on hand and is worth ~$6.3B.
Garmin used to be in a position of having TeleAtlas in the hands of TomTom and Navteq in the hands of Nokia, meaning they might face an increase in mapping costs. Garmin has either put TomTom in this position, or forced them to go deeper in debt by upping the price of TeleAtlas. If Garmin gets stuck buying the company, they at least have the advantage of being able to afford it, and they have a longer history of acquisitions, which implies to me a better ability to integrate TeleAtlas. It will be interesting to see how this develops. Unfortunately, I'll be watching from the sidelines.
In fact, HYTM hasn't really gotten away with it. The past couple of days have seen HYTM drop down to $4.71 so far. Incidentally, this puts me fairly deep in the red. We'll just have to see what the implied volatility does after earnings. It may still be worth holding on to if I can still get >5% a month in options premiums. Or perhaps earnings will beat analyst estimates and I'll get my shares called away after all.
In other news, Garmin (GRMN) is down below $100 again. I think if I had $10,000 or multiples thereof, I would buy some GRMN shares and write more out of the money covered calls. Garmin seems to be down on fears of a TeleAtlas bidding war with TomTom (TOM2.as). However, I see this as both a good move and temporary. Garmin has about $1B cash on hand and is worth >$20B, while TomTom probably has less on hand and is worth ~$6.3B.
Garmin used to be in a position of having TeleAtlas in the hands of TomTom and Navteq in the hands of Nokia, meaning they might face an increase in mapping costs. Garmin has either put TomTom in this position, or forced them to go deeper in debt by upping the price of TeleAtlas. If Garmin gets stuck buying the company, they at least have the advantage of being able to afford it, and they have a longer history of acquisitions, which implies to me a better ability to integrate TeleAtlas. It will be interesting to see how this develops. Unfortunately, I'll be watching from the sidelines.
Thursday, August 16, 2007
Earnings Strategy: The Aftermath
So, Earnings for Google (GOOG), Apple (AAPL), Garmin (GRMN), AMD (AMD), Amazon (AMZN), and Akamai (AKAM) were all done by August 1. I've delayed writing about my findings because I've been highly distracted by Harry Potter. I'm done with that now, though, so here it goes.
Even though GOOG moved down 30-40 points after earnings, no reasonable combination of 540-560 strike price options make money. For AAPL, I tried looking at further out of the money options. Once again, the movement wasn't large enough to make money. GRMN was interesting in that it had a spike up after earnings, but then kept rising another 10 points. I don't think I would have made money off the initial movement, though. I didn't do any real analysis of AKAM, but after the fact, I think it's movement of 20% would have resulted in some profit. AMD barely moved at all (meaning a large loss in strangle options), which I found surprising given it lost another $600M last quarter.
So, what did I learn? First, I learned a bit of new terminology. When you buy a put and a call option at the same strike price, that's called a straddle. When you buy a put and a call, both out of the money, it's called a strangle. Second, I learned that a very large price change is required to make either of these work through earnings. Third, my previous talk of increased volatility was mostly wrong. It turns out that statistical volatility will indeed increase, but implied volatility (IV) will plummet. Thus, options tend to lose half their value right after earnings, everything else being equal. Bummer.
In the future, then, I'm going to analyze longer-term options, which tend not to have such high IV shifts because of earnings. I'm also going to look at what is required to write both a put and call option to take advantage of the IV crush. Normally, to write a call, you have to have the 100 shares in your account. To write a put, you have to have the cash available to buy 100 shares at the strike price. I'm not sure what assets I need, exactly, to buy both, as I'd think they'd cancel each other out to some extent.
For now, my overall earnings strategy is GET THE HELL AWAY! Things are just too wild around earnings season. Now I just need the overall market to improve so I have money to invest again.
Even though GOOG moved down 30-40 points after earnings, no reasonable combination of 540-560 strike price options make money. For AAPL, I tried looking at further out of the money options. Once again, the movement wasn't large enough to make money. GRMN was interesting in that it had a spike up after earnings, but then kept rising another 10 points. I don't think I would have made money off the initial movement, though. I didn't do any real analysis of AKAM, but after the fact, I think it's movement of 20% would have resulted in some profit. AMD barely moved at all (meaning a large loss in strangle options), which I found surprising given it lost another $600M last quarter.
So, what did I learn? First, I learned a bit of new terminology. When you buy a put and a call option at the same strike price, that's called a straddle. When you buy a put and a call, both out of the money, it's called a strangle. Second, I learned that a very large price change is required to make either of these work through earnings. Third, my previous talk of increased volatility was mostly wrong. It turns out that statistical volatility will indeed increase, but implied volatility (IV) will plummet. Thus, options tend to lose half their value right after earnings, everything else being equal. Bummer.
In the future, then, I'm going to analyze longer-term options, which tend not to have such high IV shifts because of earnings. I'm also going to look at what is required to write both a put and call option to take advantage of the IV crush. Normally, to write a call, you have to have the 100 shares in your account. To write a put, you have to have the cash available to buy 100 shares at the strike price. I'm not sure what assets I need, exactly, to buy both, as I'd think they'd cancel each other out to some extent.
For now, my overall earnings strategy is GET THE HELL AWAY! Things are just too wild around earnings season. Now I just need the overall market to improve so I have money to invest again.
Wednesday, July 18, 2007
Earnings strategy
For this quarter, I plan on evaluating a few strategies on investing. I definitely want to research this quite a bit more before I bet real money on it. Earnings is a notoriously volatile time for stocks. A company can have profits increase by 50% and still have a stock price drop of 15% because revenues were 1% lower than expected. It really makes little sense.
Anyway, the companies I watch tend to react violently one way or the other. It's fairly rare that the stock doesn't move considerably up or down. We'll start out by looking at Google (GOOG), because it's closing price on Tuesday of $555.00 is ideally suited to such an analysis, being halfway between two strike prices.
So, GOOG earnings is July 19. I wouldn't want to buy options for July, as those expire on the 21st. Chances are that I'd lose everything. Instead, I'll look at August contracts.
As you can see, puts are relatively cheaper, meaning people expect Google to rise. I tend to agree with this prediction, but that's not the exercise at hand. I'm trying to figure out what exactly will happen if I purchase both calls and puts right before earnings. I will definitely lose a day of time value, which is a fairly significant portion of the month of time remaining.
If the stock price rises, the calls will gain value and the puts will lose value. The delta (change in option premium for every dollar change in underlying stock price) gets higher as options get more valuable, though. This ends up keeping the premium at least as high as the stock price - strike price (for calls). What this means is that as the stock moves in one direction, the profitable contract should theoretically start to gain value faster than the losing contract loses value. Also, if there is a significant move one way or the other, the volatility will increase, further improving the profitable contract's price while padding the fall of the losing contract.
Now, if the stock doesn't move much, then the time value lost will outweigh any of the above considerations. I estimate this to be well under a 5% loss for the day, though. I also need to look at the effect of trailing stop orders and regular stop orders. For GOOG, I'm currently thinking something along the lines of a trailing stop on the call that would trigger a trailing stop on the put. I'm hoping this would make the call's spike right after earnings result in maximum profits and then trigger an order to take advantage of any overcorrection or profit taking.
Over the next week or two, I'll do some virtual trading and see how things work in practice with various stocks/options. I'll keep you posted.
Anyway, the companies I watch tend to react violently one way or the other. It's fairly rare that the stock doesn't move considerably up or down. We'll start out by looking at Google (GOOG), because it's closing price on Tuesday of $555.00 is ideally suited to such an analysis, being halfway between two strike prices.
So, GOOG earnings is July 19. I wouldn't want to buy options for July, as those expire on the 21st. Chances are that I'd lose everything. Instead, I'll look at August contracts.
| Strike | Call | Put |
| 550 | 24.90 | 17.30 |
| 560 | 19.80 | 22.30 |
As you can see, puts are relatively cheaper, meaning people expect Google to rise. I tend to agree with this prediction, but that's not the exercise at hand. I'm trying to figure out what exactly will happen if I purchase both calls and puts right before earnings. I will definitely lose a day of time value, which is a fairly significant portion of the month of time remaining.
If the stock price rises, the calls will gain value and the puts will lose value. The delta (change in option premium for every dollar change in underlying stock price) gets higher as options get more valuable, though. This ends up keeping the premium at least as high as the stock price - strike price (for calls). What this means is that as the stock moves in one direction, the profitable contract should theoretically start to gain value faster than the losing contract loses value. Also, if there is a significant move one way or the other, the volatility will increase, further improving the profitable contract's price while padding the fall of the losing contract.
Now, if the stock doesn't move much, then the time value lost will outweigh any of the above considerations. I estimate this to be well under a 5% loss for the day, though. I also need to look at the effect of trailing stop orders and regular stop orders. For GOOG, I'm currently thinking something along the lines of a trailing stop on the call that would trigger a trailing stop on the put. I'm hoping this would make the call's spike right after earnings result in maximum profits and then trigger an order to take advantage of any overcorrection or profit taking.
Over the next week or two, I'll do some virtual trading and see how things work in practice with various stocks/options. I'll keep you posted.
Thursday, July 12, 2007
Limit Orders
Similar to my previous post on the financial-benefits-to-homeownership, I am now making a list of the benefits of limit orders:
- The market sometimes behaves irrationally - a large institution buying or selling stock can significantly affect the price in the short term. You can place buy limit orders to take advantage of spikes downward in the market and sell limit orders to take advantage of upward spikes in the market. For regular purchasing or selling, this also makes sure you don't get taken for a ride between the time you get a stock quote and the time you press the 'Place Order' button.
- Options are priced based on the underlying stock value, but they tend to move in $0.10 increments. A buy limit order of $3.50/share will theoretically be executed as soon as that jump takes place, meaning the stock has to move back a smaller amount before it rises to $3.60 (again, theoretically. Also, this doesn't equate to profitability, as there is the ask/bid price spread). A sell limit order has the opposite property, but is still a good thing due to the previous point.
- Limit vs Trailing Stop: a trailing stop order can result in higher profits if the stop price rises above the limit price. However, the actual execution of the order is a market order, which means it could execute at any price. For instance, I tried a trailing stop on some Google options. The stop value got up to $9.50, but when it finally executed, I only got $9.33. A limit order may miss more profits than a trailing stop order, but the profits are more predictable.
- Limit orders may not execute, which can be both bad and good. First, you may not have your order execute and your money will sit idle (or you will still own a stock you may not want). But, this makes them ideally suited to conditional orders like one-cancels-all. For example, let's say I have $10,000 to invest. I can place a one-cancels-all order on three different stocks - 20 shares of GOOG @ $500, 133 shares of GRMN @ 75, or 100 shares of IBM @ $100. Given today's closing prices of $544.47, $79.69, and $109.10, none of these are likely to execute - I chose the prices for easy calculations in my head. But, if any of these stocks suddenly (even if only briefly!) becomes an amazing deal, I'd be able to take advantage.
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