Earnings Season Is Approaching
Dear New Money Club Member,
Not only is it monthly options expiration week, but earnings season is upon us!
A few big banks report on Friday, which should direct the talking heads' attention off politics and back to the market.
Plus, as January options continue to unwind and roll forward, we should see stocks trade higher.
Now, the CBOE Volatility Index (VIX), aka the “fear” index, is still above our key 15 levels, trading at 22 — indicating that we need to continue to be cautious for a possible shakeout.
But, as always, we’ll focus on the signals and ignore the noise.
With that, let’s talk shop…
Portfolio Update
We have two positions that are set to expire this coming Friday. One of them is still in play, and I’ll keep you updated if we can salvage it before expiration.
On Monday, we issued an alert to:
Buy to Open América Móvil, S.A.B. de C.V. (NYSE: AMX) February 19, 2021, $16 calls (AMX210219C00016000) up to $0.35 per contract or better, for the day.
So right now, we’re holding:
- Sandstorm Gold Ltd. (NYSE: SAND) Jan. 15, 2021, $10 calls (SAND210115C00010000).
- Axalta Coating Systems Ltd. (NYSE: AXTA) Jan. 15, 2021, $32 calls (AXTA210115C00032000).
- Altria Group Inc. (NYSE: MO) Jan. 29, 2021, $43 calls (MO210129C00043000).
- Cloudera Inc. (Nasdaq: CLDR) Jan. 22, 2021, $15 calls (CLDR210122C00015000).
- Coty Inc. (NYSE: COTY) Jan. 22, 2021, $8 calls (COTY210122C00008000).
- América Móvil, S.A.B. de C.V. (NYSE: AMX) February 19, 2021, $16 calls (AMX210219C00016000).
Let’s keep focused and let the market come to us. And rest assured, I’ll be keeping you updated every step of the way.
Your Questions, Answered!
The mailbag is full, so let’s get to your most pressing questions.
“Hi, Joshua,
Our January options are expiring this week — can you explain what would happen if we held them past expiration?" — Bill T.
Thanks for writing in, Bill!
A lot of our trades start “out of the money” and can quickly become “in the money.”
In that event, we've already closed our position for a big gain.
Here’s why…
If you were to hold a position until expiration, one of two things can happen. The determining factor is whether the underlying stock is trading above or below our specified strike price at the time of expiration.
If you recall, when the stock is trading higher than the strike price, it’s considered “in the money” (ITM).
When an option expires ITM, it will automatically be exercised by your broker.
For each contract you hold, your broker will automatically purchase 100 shares of the company at the option’s strike price.
Owning shares of stock isn’t part of our trading strategy. Stocks tie up large sums of money and are slow-moving, which is the exact opposite of what we want.
Short-term options, on the other hand, allow us to capture explosive stock movements without the hassle of owning shares.
So, I will always recommend selling positions with any value left on them a week before they expire.
Now let’s look at the other possibility at the time of expiration.
If an option expires “out of the money” (OTM), that means the stock is trading lower than our strike price.
In this case, the option will expire and will be removed automatically from your trading account, so there’s no further action required on your part.
If an OTM option has a good amount of premium to salvage a week before its expiration, I will most likely exit or roll it forward for more time.
But most of the time, we are making very small limited-risk bets that have a huge upside.
That being said, we still have a few January options left on the table. As of right now, none of our expiring January options have any value to salvage.
We still have a few days, but it's most likely they will expire worthless. But, of course, I'll keep you updated should things change.
That’s it for me today, but be on the lookout for our next profit alert!
And if you want your question answered next week, make sure you email it in today at questions@newmoneycrew.com.
Sincerely,
Joshua M. Belanger
New Money Club