October 31, 2016  Trade Alert -  Earnings Eagle  Portfolio

Gilead (GILD) announces tomorrow after the close.  IV for the 04Nov16 series is 60 compared to 34 for the 16Dec16 series.  The company has fallen 32% from its 52-week high and pays a dividend of 2.5% and a p/e of only 6.4 which should provide some level of support. Expectations are for lower sales and earnings.  These facts support the idea that a big drop in stock price is unlikely after the announcement.  This trade will make money if the stock is flat or goes up by any amount (a maintenance requirement of $500 per spread, less the amount of the credit, will result):

 

BTO 5 GILD 16Dec16 70 puts (GILD161216P70)

STO 5 GILD 04Nov1674 puts (GILD161104P74) for a credit of $.17  (buying a diagonal)

 

Be prepared to change this price limit by $.05 or more in order to get an execution. .

 
Happy trading.

 

Terry