Navigating the intricacies of trading stocks around earnings announcements requires careful consideration, and yet, we find an opportunity to leverage lower-than-average longer-dated options premiums in an e-commerce payment services company, shaping a cautiously optimistic position leading into earnings.
Stock investing, in general, is a complex endeavor, and the challenges intensify when anticipating a catalyst such as earnings. Several key challenges arise when contemplating trading stocks ahead of or during earnings, including:
Uncertainty and Surprises:
In certain scenarios, the options market may not foresee substantial moves, creating an opportunity. One such case is Fiserv (FI), where the implied move after earnings aligns with the long-term average, presenting a potential opening. The current options market indicates a likely 3.5% move, consistent with the 3.2% historical average. Despite Fiserv's recent strong performance, options premiums, especially for longer-dated options, have decreased.
An intriguing strategy in this context is the "poor man's buy-write." This involves purchasing longer-dated calls and writing nearer-dated calls against them to offset decay or "theta."
Fiserv, specializing in e-commerce services, operates globally, focusing primarily on the United States, which contributed 85% of its recent fiscal year revenues. The trade strategy involves selling the weekly Feb. 9 $150 calls, aiming to leverage additional call or put options after their expiration to continue collecting premium over time.
This carefully constructed approach seeks to navigate the complexities of earnings trading while capitalizing on an opportune moment in Fiserv's options market, offering a nuanced and modestly bullish stance for investors.
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