Help requested on protecting a long term position from earnings report

N

noaveragingdown

Never took the time to study options extensively, therefore, I'm hoping a kind soul out there can provide some insight.

I've been a long term owner of CSCO and I don't wish to exit the position for quite some time. Unfortunately, last two reports have been brutal to me and perhaps three times is the charm but this time I want to be better safe than sorry as I've had enough of those wild swings.

Own approximately 4000 shares and looking for suggestions on what's the most intelligent way to proceed if I wish to maintain it and protect capital without paying too much for insurance; hopefully I'm not asking for something unreasonable.

Thank you for your time, much obliged.

NAD
 
It looks like the stock continued to fall for about 3 weeks after each of the last two reports so if you want protection that goes beyond the initial response to the announcement then you may consider looking at Mar options, otherwise you can go with Feb, which have two series (one expiring on the 11th and the other on 19th).

The simplest way is to just buy a put option, say 21 strike, which gives you protection below 21. The Mar would set you back about .42.

If you don't mind giving up the upside, then you can also do a collar, such as the 21/23 or the 20/24, both of which could be done for even money (no cost). Or you can do a 21/24 collar, but it would cost you about .20 for the Mar expiration.
 
Quote from noaveragingdown:

I've been a long term owner of CSCO and I don't wish to exit the position for quite some time.
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I assume this is due to the tax consequences of selling it.

Sell the synthetic. Long a put, short a call at the same strike. This will neutralize your exposure. Take it off a week or so after earnings. This is equivalent to a short against the box.
 
Quote from noaveragingdown:

Own approximately 4000 shares and looking for suggestions on what's the most intelligent way to proceed if I wish to maintain it and protect capital without paying too much for insurance; hopefully I'm not asking for something unreasonable.
More...
The outright purchae of protective puts is the simplest and most effective way to protect your stock but it costs the most.

The collar is the cheapest way to lock in a low loss range (loss on stock down to strike plus cost of collar, if any) but because it involves selling a call, you will give the stock up (or buy the calls back for a loss) if the stock zooms up beyond the strike you sell. To lessen the odds of this, you can sell a higher strike call but that means a higher collar cost.

If no upside cap desired, there are possibilities with vert/diag put spreads but they provide limited protection.

An interesting play might be selling the 2/11 weekly call as part of a diag collar since they have higher IV and will expire a week before the normal Feb series. Since CSCO reports 2/11 AMC, they do have a no alternative exercise risk.

What's best depends on how much you're willing to shell out, how much loss you can tolerate versus how much upside is enough to be willing to give the shares up.
 
Sorry, my bad! :eek:
I saw the year not the date in my quick look.

At lease I got the year right. :)

That makes the weekliy idea less dicey it won't be expiring the same day.
 
I was thinking re this about something I never tried but might be OK with the weeklies available for some tricks. Somebody tell me their opinion:

A collar where you sell only enough calls to cover the cost of the puts, so that you don't give up as much upside as you would with a standard issue collar. For instance, on this you could sell the 24 Feb monthlies for .15, buy the 20 Feb weeklies for .05. Assuming no commish that's a 3:1 ratio. On a severely down report the 24's would drop to .01 or .02 anyway, and the weeklies would shoot up. On an up report, you're limited above 24, but not by as much as if you had done a 1:1 ratio.
 
Quote from trefoil:

A collar where you sell only enough calls to cover the cost of the puts, so that you don't give up as much upside as you would with a standard issue collar. For instance, on this you could sell the 24 Feb monthlies for .15, buy the 20 Feb weeklies for .05. Assuming no commish that's a 3:1 ratio. On a severely down report the 24's would drop to .01 or .02 anyway, and the weeklies would shoot up. On an up report, you're limited above 24, but not by as much as if you had done a 1:1 ratio.
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That's a good way to hedge against an EA clobbering and yet commit to a lower loss of stock should there be a stunning upside move (assignment) - as long as he can tolerate up to a 2 pt+ loss on long shares should CSCO drop. The weekly's IV will collapse and with 2 days remaining, CSCO will have to get close to 20 for them to expand significantly.
 
Quote from noaveragingdown:

Never took the time to study options extensively, therefore, I'm hoping a kind soul out there can provide some insight.

I've been a long term owner of CSCO and I don't wish to exit the position for quite some time. Unfortunately, last two reports have been brutal to me and perhaps three times is the charm but this time I want to be better safe than sorry as I've had enough of those wild swings.

Own approximately 4000 shares and looking for suggestions on what's the most intelligent way to proceed if I wish to maintain it and protect capital without paying too much for insurance; hopefully I'm not asking for something unreasonable.

Thank you for your time, much obliged.

NAD
More...
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Noaverage;

Well, with most of the{CSCO} trends[bearish] down /10 yr,5 year,1 year, 3 months, 6 months;
And your ''2 reports brutal,...'' consider selling as much of 4,000 as you can......................................

Also 5 year,1 year,3 months, 6 months of QQQQ is up;
another reason to sell as much of your 4,000 as you can, the better/best investors cut a loss also

Good point on'' protecting capital'', cool;
I have cut a loss on real estate[earlier], & I am glad I did,
even though I was sure the long term up trend would have bailed me out.:cool:
 
Quote from spindr0:

That's a good way to hedge against an EA clobbering and yet commit to a lower loss of stock should there be a stunning upside move (assignment) - as long as he can tolerate up to a 2 pt+ loss on long shares should CSCO drop. The weekly's IV will collapse and with 2 days remaining, CSCO will have to get close to 20 for them to expand significantly.
More...

Well, I figure if you're in a stock you should be able to tolerate 10% down on an earnings day, assuming a reasonably diversified portfolio, especially if you're in a tech stock. Even if it makes up 10% of your holdings (which is a lot, usually), 10% down would then only be a 1% hit to the portfolio. If you can make that your max loss on an earnings day, that's not bad, IMO.
 
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