Hello Everybody,
First of all… wish you all a Happy New Year! I had to go through a surgery (at the beginning of the new year) on my hand to fix lacerated index finger extensor tendon. Hence I could not post on the blog for a while.
The great news is that all our trades have been working out great! Today, I would like to focus on BAC and GE (both reporting their earning tomorrow morning before the market opens).
We initiated our position in BAC on Dec 09, 2010 when it broke out of the 50-day moving average. Since then, the stock has run up more than 25%. If you actually had bought the Feb 12 calls, you have made much more than that. Given the run up, we will not be surprised if it pulls back post earnings. If you are holding BAC shares and do not want to sell your core holdings, you may consider buying the 14-strike weekly PUTS (expiring on Jan 28, 2011) as protection. If you want a stock replacement strategy, you can sell your BAC shares at ~ 14.50, thus locking in your profit, and use part of the proceeds to buy the 15-strike CALLS expiring on Jan 28, 2011 (weekly options) for ~ 20 cents (i.e., 20 USD per contract). If you had bought the Feb 12 CALLS, you may consider rolling those over to the 15-strike CALLS expiring on Feb 18, 2011.
We initiated our position in GE on Dec 10, 2010 when it broke above the resistance in the 17.50 area. It has since gone up ~ 6%. You can either buy the 18-strike PUTS expiring on Jan 28, 2011 (weekly options) or do a stock replacement by selling your GE shares and buying the 19-strike CALLS expiring on Jan 28, 2011 (weekly options) for 20 cents (i.e., 20 USD per contract) or 19-strike CALLS expiring on Feb 18, 2011 (lower IV) for 30 cents (i.e., 30 USD per contract).
We will monitor these positions tomorrow after earnings release.
– DevTrade (Full Disclosure: Long BAC and GE calls at the time of writing)