Yesterday in the chat room I gave a nice earnings trade. I said I was buying the $28 HPQ puts and the $30 calls for earnings. It ended up being a profitable trade. My thought process involved HPQ's prior earnings and the fact that I think HPQ is still not on firm footing. Most people see Hewlett Packard and think Desktop computers. Guess what? Desktops are dying. How about HPQ's foray into tablet computing? Do you know what DOA stands for? I do have an HP touchpad, so it wasn't necessarily DOA, but they killed it right away... all things considered it was an awful move for the company. Which brings me to my HPQ earnings play.
I bought both puts and calls as I saw a 5% or better move coming. The stock ended up sliding more than 6.5%.
I bought 7 of each of the $28 puts and $30 calls.
Total cost for both HPQ calls and puts $532 + commission $550
Sold at $770 + commis $755 for $205 profit
HPQ $28 puts from $.36 to $1.10
HPQ $30 calls from $.40 to $.00
If HPQ had traded steady I would have lost out on both trades for an almost total loss. There is risk with options, but if you know what your doing, that risk can be limited. I had a strong feeling a big move was coming in either direction and I profited from that big move.