Milking Priceline

by Jeff on February 14, 2010

Gee, can I pull any more out of this trade? I say yes! Here’s what I’ve been thinking…

Take a look at the risk graph below. It shows just the long MAR 200 Put and 240 Call. Theoretically, if I close all the short FEB options and the long MAR 180 Put, I could still pull in several hundred MORE dollars if the stock makes a big move after earnings Wednesday afternoon. Has PCLN done that before? Heck yes – I made a bundle on a straddle in their last earnings. This is not much different although the strikes of the long Call is not positioned well for a big up move. The question is, will PCLN blow away the estimates again, or will the market interpret their earnings as a disappointment? They have been beating estimates and missed only once since FEB of 2003. This should be fun!

Click here for a higher resolution graph.

I still have to work out the details and I will get back to you with my decision. Meanwhile, enjoy your Valentines ♥ Day and for those in the US – yes, Uncle Sam gets another day off at our expense on Monday – Happy Presidents Day!
◄ Jeff  ►

Tagged as: Calendar Spread, expiration, Strategy

  • Bruce

    I think the disparity in Vega between the two months PCLN 210 Calls is what is killing me. Delta is pretty much even between Feb and March strikes. So price is nearly insignificant.

    My Vega is .09 in Feb, but .25 in March. So losing three points in IV in both months ends up hurting me three times worse in March which of course is the Call I want to sell.

  • http://theoptionguru.com/blog Jeff W

    Bruce,

    Here is what I am seeing right now. Volatility is through the roof on the short FEB options, which is eating into my profit – it's down over 50% from my expectation as of last week (this brings them closer to my sale/entry price). Truly a lesson to be learned.

    Based on the current volatility, I can make more if I wait until tomorrow – with the added risk. If volatility increases even more, the additional risk may not make it worth it. Hmmm…

    ◄ Jeff ►

  • Bruce

    Beware of liquity! You can't simply split the bid/ask. I am trying to sell at 4.25 and haven't been able to get out even when split hits 4.35 on PCLN. Market depth reveals that the marketmakers are really taking advantage of it being both earnings and option week.

  • Bruce

    Here is earnings whisper Number

    4th Quarter Ending December 2009
    Earnings Whisper ®: $1.85
    Consensus Estimate: $1.50
    Members' Estimate: N/A
    Surprise Expectation 1: 75%/0%
    Release Date: Confirmed 2/17/2010
    After Close

    I haven't made my mind up if I should get out today or wait until tomorrow AM.

    Looking at new calendars I guess I am glad I waited since today will be a big up day (according to morning future reports). It is weird to be concerned about big up days.

    The other question I am pondering is: ” if I am concentrating on Theta should I always wait until the closing bell to place a calendar and thus avoid undue risk?”

Previous post:

Next post: