Dear Friend,

The Seagate earnings play I recommended last week resulted in a small gain because while we were right about the direction of the change (down), it fell more than we would have liked.  On the other hand, the Starbucks option spread did quite poorly because the stock rallied on a big increase in guidance.

The lesson in the Starbucks play is that when the stock falls significantly in the days directly before the announcement, it may mean that expectations have come way down and the stock might move higher after the announcement.  When SBUX fell over $2 in the three days leading up to the announcement a good move would have been to buy back some of the short calls which were sold earlier at a much higher price (the spread would still make money if the stock continued lower).  When it rose sharply, the extra long calls would have made serious gains.

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Terry

How to Play the LinkedIn Earnings Announcement this Week
 
How To Play The LinkedIn Earnings Announcement This Week 

There are many similarities between the situation in LNKD, and GOOG and Seagate, both of which fell sharply after an earnings announcement that beat estimates.
 
Please read the entire Seeking Alpha article to get my full thoughts on the diagonal spread play and why I expect the stock will trade lower after the announcement.

When we went to place the spreads I recommended in the Seeking Alpha article we found that the options market was not very liquid.  There were large bid-ask spreads fot LNKD options and it was difficult to get decent executions.  We ended up buying less than half as many spreads as we set out to buy rather than paying what we thought were too high prices.  Unless you feel very strongly that the market will be lower (and can place a diagonal call spread at a credit), it might be best to take a week off from an earnings-related play this week.

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      Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

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I look forward to having you on board, and to prospering with you.

Terry

How to Play the LinkedIn Earnings Announcement this Week

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Sincerely,
Dr. Terry Allen
Terry's Tips