One of the more challenging, yet potentially rewarding, types of option trades is trading around either a long position or no position in a stock that’s about to report earnings.
Many investors tend to stay away from earnings season, as it can be a bit more volatile than they care to try to stomach. But not only is this a great time to make directional plays (by buying calls or puts), you also have the opportunity to put cash in your pocket now and come out a winner either way — whether the underlying stock moves (much) or not.
I like those kinds of odds!
As we head into another earnings season, here are five options trades that could offer fast profits on three big-name stocks.
Trade #1 – Sell Citigroup Puts
Citigroup (NYSE:C) has potential in the long run, or so thinks hedge fund manager Bill Ackman, who holds a huge stake in Citi. The stock is trading well below what he (and I) believe is where it should be trading.
Citi closed right at $30 on Tuesday, so if you don’t hold it and you’d like to because it’s a value play, I say sell the C Feb 30 Put for $1.75. That’s almost a 6% premium to take the risk, which is much higher than what I usually target.
Trade #2 – Sell Citigroup Covered Calls
For those who are long Citi and are concerned about its upcoming earnings report and want to hedge their bets, the C Feb 30 Calls are also going for $1.75, so you’ll get 6% downside protection while collecting that premium.
Just don’t sell calls without owning the underlying stock — the risk usually isn’t worth the reward, no matter what the underlying stock is. For this Citi trade, you can buy the shares and sell the calls, or simply sell those C Feb 30 Puts instead.
Trade #3 – Sell Google Puts
I like option trades on Google (NASDAQ:GOOG) because I believe the company is still in its infancy of world domination. It’s simply the most innovative, amazing technology play in existence outside of Apple (NASDAQ:AAPL).
If you don’t own Google but love it right here at the $623 stock price, then sell the GOOG Feb 600 Puts for $15.40. That’s a fantastic income stream of $1,540 per contract. And if Google sells off after earnings, you’re effectively in at $585. And if not, you’ve just collected a nice paycheck.
Trade #4 – Sell Google Calls
For those who own Google and think it has had its run and want to generate some coin off of it without giving up too much upside, sell the GOOG Feb 645 Call for $16.50. You come out ahead if the stock leaps up as high as $661, but you’re also covered down to $607 if it sells off.
Trade # 5 – Sell Apple Puts
If you don’t own Apple (NASDAQ:AAPL) but want to, sell the AAPL Feb 410 Puts for $10.60. You can get in at an effective price of $400 — a full 5% below the current price if the stocks sells off. And if it doesn’t, you’ve just netted a grand to buy a new iPad and still have some money left over!
As of this writing, Lawrence Meyers did not have a position in any securities mentioned.
