DAL: Removing earnings risk while keeping upside exposure.
This post takes over from the previous one (see below), as we propose to take full profits ahead of earnings publication on July 13.
The logic is to entirely remove any risk related to earnings disappointment, while keeping full upside exposure.
The cost of this strategy will be < 2% (to be put in perspective with the 22.5% we have achieved so far on the long stock position).
BUY DAL 21July17 $56 CALLS at $0.96/Share (indicative, as per last close).
RISK REWARD
If the stock flies, you make money on the call and can optionally convert back into your stock position.
If the stock trades down, your hedging strategy would have worked and you might be able to sell OTM puts to offset the call premium.
The worst-case scenario is if the stock remains flat: You would have lost your position and your premium.
The logic is to entirely remove any risk related to earnings disappointment, while keeping full upside exposure.
The cost of this strategy will be < 2% (to be put in perspective with the 22.5% we have achieved so far on the long stock position).
BUY DAL 21July17 $56 CALLS at $0.96/Share (indicative, as per last close).
RISK REWARD
If the stock flies, you make money on the call and can optionally convert back into your stock position.
If the stock trades down, your hedging strategy would have worked and you might be able to sell OTM puts to offset the call premium.
The worst-case scenario is if the stock remains flat: You would have lost your position and your premium.
