We are highlighting the trade Fari Hamzei put on shortly before the close today before Google (GOOG) released it's earnings for the 3rd Quarter. We are not highlighting it because it was a successful and highly profitable trade, which it was. The out-of-the-money OCT 570 calls he bought for $2.05 would likely open near $20 tomorrow morning based on GOOG's after-hours closing price. We are highlighting it because even by Fari's own admission it was extremely speculative and high risk trade, “a roll of the dice”. Fari knew the risk of this type of play and used only funds he was willing to loose had Google's aftermarket price action been any different then it was.
As professional traders know, there are many unknowns when companies release earnings, making earnings trades a high risk gamble. Not only are the topline earnings unknown, but also the components of the financial statement or something the company management team may say, that would affect how the stock price reacts to earnings. With so many unknowns, many professional traders step aside of stocks during earnings or only trade specific earnings opportunities that they believe is worth the gamble.
In today's Google trade example, Fari Hamzei shows how great traders use their experience and statistical tools at their disposal to have a chance at a big payoff:
1. Fari purchased out of the money call options (October 570 call options) with one day until expiration.
2. GOOG was trading at 42% vol at 2 sigma and buying the 3 sigma options with again one day until expiration.
3. Used what he calls throw away money. Profits form his October trading profits. This type of trade is not recommended for small account holders.
The following is the real-time chatroom transcript from Hamzei Analytics' HFT chatroom for this trade (this trade was not replicated on the HFT twitter for all subscribers because this was not a "recommended" trade.)
Thu Oct 14 2010 12:47:27 PDT> Fari Hamzei: just bot some GOOG options
Thu Oct 14 2010 12:47:34 PDT> Fari Hamzei: took a flyer
Thu Oct 14 2010 12:47:48 PDT> Fari Hamzei: plesae do not follow me on this trade
Thu Oct 14 2010 12:47:55 PDT> Fari Hamzei: it is very high risk
Thu Oct 14 2010 12:48:23 PDT> Fari Hamzei: bot Oct 570s calls
Thu Oct 14 2010 12:48:29 PDT> Fari Hamzei: paid 2.05 for it
Thu Oct 14 2010 12:48:32 PDT> Fari Hamzei: 1 day to go
Thu Oct 14 2010 12:48:44 PDT> Fari Hamzei: complete roll of the dice
Thu Oct 14 2010 12:49:46 PDT> Fari Hamzei: and i expect to lose all of it
Thu Oct 14 2010 12:50:30 PDT> Fari Hamzei: these were monthly options
Thu Oct 14 2010 12:50:36 PDT> Fari Hamzei: they expire tomorrow
Thu Oct 14 2010 12:50:55 PDT> Fari Hamzei: just purely a spec trade
Thu Oct 14 2010 12:51:24 PDT> Fari Hamzei: did not put it out on HFT
Thu Oct 14 2010 13:00:23 PDT> Fari Hamzei: out
Thu Oct 14 2010 13:00:25 PDT> Fari Hamzei: wow
Thu Oct 14 2010 13:00:42 PDT> Fari Hamzei: paid for itself many times over
Thu Oct 14 2010 13:01:10 PDT> Fari Hamzei: GOOG
Thu Oct 14 2010 13:04:32 PDT> Fari Hamzei: GOOG is up 5%
Thu Oct 14 2010 13:04:50 PDT> Fari Hamzei: we were LUCKY
Thu Oct 14 2010 13:04:55 PDT> Fari Hamzei: this was no skill
Thu Oct 14 2010 13:17:57 PDT> Fari Hamzei: i am bolting out now
Thu Oct 14 2010 13:19:01 PDT> Fari Hamzei: yes shorts are toast
Earnings Surprise (Beat),
Quarterly Earnings Report,
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