DTV Earnings Straddle

• stevenplace
• February 9th, 2009

Personally, I think DTV is stupid and unscalable. But I don’t let my opinions get in the way of trades.

DTV has earnings on Feb 10th. Implied volatility is  a little higher and has been declining along with the market. Here’s the trade

Sell -10 DTV Feb 09 22.5 Straddle 2.07 or better

Statistically it’s a better than 55% chance that the stock will stay inside your spread, and I think that due to the earnings premium in the options that there’s a stronger edge than what the stats imply. This is only a hold for earnings, but you could ride it out through expiration if you thought that the price was going to stay in this range.

On a technical basis, the breakeven on the spread just so happens to coincide with good levels of support and resistance:

I think all-in-all this is a good play if you’ve got the margin for it. It’s only a couple days hold, the b/e are technically sound, and the vol crush should help out your position significantly.

I’ll be reviewing the play post-earnings to see how it went.

Hat Tip goes to TheOptionsInsider.com with the news that led to this idea.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: dtv

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