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Strategies & Market Trends : The ultimate play:STRADDLES on earnings announcements.
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To: Chris Baker who wrote (46)7/24/1996 7:14:00 PM
From: farouk a. hassieb   of 140
 
Chris,

I have been using a similar strategy with leaps and short-term puts before earnings. I have been trading 98' leaps on INTC and covering myself with shorter term puts. If at any time INTC unquestionably breaks support of 69, I would sell my leaps and load up on puts. With your strategy, buying long term calls on the "high flyers" may not turn out so well in the longer term. Most of these stocks have lost their appeal and may never see their former trading ranges before your call options expire. I would need to know how long term are your calls and at what strike. I would not be overly optimistic about the networking index or the NASDAQ in general for some time. I have been holding puts on the NWX(networking index), which contains some of the stocks you spoke of.It is a good idea to have insurance on any long position especially in the current market. However, constantly hedging your longer term calls with ST puts will offset any loss of the call value, but the effort and commissions involved may not be worth the headache of breaking even.

Today, I picked up an Aug straddle on USRX with the 70 calls and the 65 puts when the stock was trading in the 65.5 and the 67.5 range respectively. They announced great earnings today and was getting hammered in the after market. My total cost in this straddle was roughly $8. I think USRX will come down to test 50 where I will look to sell my put position and make a decent profit on the straddle.
Short term volatility can be very profitable.
Let me know more about your calls and I'll talk to you later.

Regards,
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