Netflix, Apple, Amazon Options Trades Ahead of Earnings
NEW YORK ( TheStreet) -- This week kicks off the truly exciting portion of earnings season. It does not get much better than Netflix(NFLX) , Apple(AAPL) and Amazon.com(AMZN) all reporting in the same week.
Investors really need to start treating these conference calls like soccer matches and Stanley Cup Playoff games. Invite over some friends. Stock the fridge with beers. Order up a few pizzas. Sit back, relax and enjoy what truly amounts to suspense and excitement.
As Jim Cramer mentions on a regular basis, if you're a current or prospective shareholder, you need to listen to these calls, entertaining or not. Even if you have no stake, even a ho-hum earnings call can provide a worthwhile learning experience.
There's nothing more unsettling than being in an options trade, particularly a directional one, ahead of earnings. That makes the release of the report as well as the conference call all the more meaningful. It probably should not be nerve-racking, but, let's be honest, most traders and investors do not have the emotionless, cool and disciplined head you need to have when making inherently risky and relatively speculative trades. Moreover, most folks who dabble in short-term speculation do not have a statistical "edge" and, worse yet, they tend to enter the lowest of low-probability trades during the most volatile times (e.g., earnings).
There's an easy answer to all of this: Do not get yourself into low-probability options trades ahead of earnings. Even though they're a disaster waiting to happen, people pile into them on a quarterly basis. Why? The allure of the "cheap" out-of-the-money option is just too much to resist.
In this article, I discuss trades not to make ahead of Netflix, Apple and Amazon earnings. I consider ones that make more sense. Some involve covered calls, a topic I expand on in Tuesday's issue of my Options Investing Newsletter . Covered calls often represent the best way to use options for beginners and experienced investors alike.
Amazon and Apple
Let's start from the last company of the three to report this week -- Amazon.com. Amazon is on deck Thursday. I am bullish long-term on the company and stock, however, I fully realize the headwinds Jeff Bezos faces. As I noted in a recent article on TheStreet , he must be getting sick and tired of having his approach of hyper-spending to fuel massive long-term opportunity second-guessed. He's only been right for more than a decade.
Nonetheless, the stock could get hit. I'm not about to take a flyer by going long an out-of-the-money put, particularly one that expires in May or June. That's partially because I am bullish, but even as a trade I cannot get with that. I elaborate on how to play bearishness when I round out this article looking at prospective Netflix trades.