SINA Corporation (SINA – $86.20) is expected to announce Quarterly Earnings today after the close.
Breakdown: I sold SINA November 11th (weekly) 85-87.5 Strangle (sold the 85 strike put and sold the 87.5 strike call) and bought 80-92.5 (weekly) Strangle for $3.65 total (excludes transaction costs).
Profitable – I make money on this trade if SINA closes between $81.35 and $91.15 by November 11, 2011.
Break-even – I breakeven on this trade if SINA closes at $81.35 or $91.15 by November 11, 2011.
Unprofitable – If SINA closes below $81.35 or above $91.15 this trade will be unprofitable, but the most I can lose is: $5 spread value minus the $3.65 I sold the spread for or a total of $1.35.
The reason I like this trade: I watched BIDU move on earnings, but less than expected. Sina’s ATM weekly straddle is priced at $9 and I am fading the movement. I am defining my risk vs reward and I am risking $1.35, but I can make $3.65. This spread most likely will not be worth zero, but it is 3-1 payout that I think is a great way to play high flying stocks on earnings. Sina is in the middle of the $70-$95 range, so I thinking it will continue to trade within this range.
Andrew R. Keene