. . . but sometimes I still do.
– Joe Walsh
Why do people complain even when things are going well? Is it because of what could have been? Is it because they feel that they have missed out on something even better.
“What could have been?”
In regards to investing, most people have rules by which we use to govern when to buy and when to sell.
Sometimes these rules, designed to protect us, or rather our capital / profits, can be seen as preventing us from earning even greater returns.
Some personal examples from the past month or so for me are . . .
- Bought 200 shares in April at $81.90.
- Soon after OLED went on a nice 10% run (~$1800) but leveled off the week before earnings.
- Happy with my quick profit, I sold 100 shares. Still up ~ $900.00
- But then I started thinking about all the “what if” scenarios around earnings.
- Long story short, I bought a May 19 $95 call for $2.70 and sold an $85 put to finance it.
- The stock reported record blow-out earnings and revisions and jumped 22%.
- My remaining equity position made an additional $1900.
- My out of the money call ~$900. Oh and the premium for the put brought that up to ~ $1200.
- Yes, there was that voice saying I should have just kept my original investment. Even though I was up a good $3000.
Greed is a terrible emotion.
- I actually liked both EA and ATVI but EA was reporting after ATVI and had really good (cheap) options. So I bought 3 May 12 $96 calls of EA before ATVI reported for $1.8 each.
- Basically nothing happened. The stock didn’t move much at all as a result of ATVI’s earnings.
- So I sold 2 of the 3 for a very, very measly profit right before EA earnings report.
- The next day those calls were worth somewhat north of $1100 each.
- Who knew EA was going to pop 12% on earnings.
- Certainly not the market. They had options priced in for less than half that amount of a move.
- Again, that little voice in the back of my head gave a very vocal 2200 cough.
- Even though I was in the money by nearly another $1000 or so.
This week presents another “alternative” like minded play on earnings. Similar to EA and ATVI.
Not that I am predicting a double digit return but the price is right. IMHO.
Home Depot (HD) reports on the 16th.
Lowes (LOW) reports on the 24th.
The retail sector has taken a beating lately thanks to the likes of Macy’s and other big name brick and mortar retailers. As a result LOW stock has fallen along with the sector. HD has actually held up quite well.
One could very easily be tempted to buy HD before earnings because they are more directly related to the housing industry which has experienced remarkable strength lately. LOW falls into this same category.
So even though they are “retail” companies. They both play to a fairly strong housing sector.
Why am I looking at LOW instead of HD. Because their weekly option premiums and volatility are significantly lower than that of HD because HD reports this week and LOW does not. If HD has a really strong quarterly report and forward looking estimate, the market could very easily drive up the price of LOW before they report a week later.
Indeed, if one looks at the numbers, the market is already pricing in the moves for each companies reports.
HD reports on the 16th and options are reasonably priced with the market pricing in approximately a 3.3% price move based on May 19th expiration date.
LOW reports a week later on the 24th and options are even more reasonably priced with an approximate 2.3% price move for this weeks May 19th expiration.
But all those numbers for LOW’s more than double for the “after” report expiration date for May 26th.
What do you think?
Would you invest in both or play one off of the other?