4/19 Earns

A flock of earnings announcements after the close today, April 19, and before the open tomorrow, April 20.

After today's close, earnings by CREE, INTC, JNPR, STX and YHOO. And before tomorrow's open, AAPL, BSX, ABT, EMC, FCX, HBAN, MO, MS, STI, T, TXT and WFC.

I play earnings as straddles -- long call and short puts, at least six months out, with identical expirations and strike prices as near to the close before the announcement as I can manage.

I'm looking for stocks that have a history of earnings surprises over the last five quarters, and that have high volatility as measured by the 14-day average true range (ATR).

Of the possibilities, I like BSX for being both high surprise and high volatility; HBAN, MS, STI and TXT as high surprise but somewhat lower volatility; and CREE, STX and FCX as high volatility but low surprise.

I find straddles to be a low risk/high reward strategy. I only lose if the stock fails to move and I hold the position a long time. Since I control the second factor, I can control my losses. The one gotcha is a black swan event that would cause the stock to cease trading or that would depress its value to zero. I handle that my proper sizing of the trade, limiting my risk on each one.

My rules are to open the positions in the last 15 minutes before the pre-earnings close, and to hold a straddle no more than five trading days after the announcement. The limited time is because these are long option positions, and they lose value with the passage of time.

If a move is sufficient to trigger a 55-day price channel breakout in one direction or another, then I'll sell the straddle leg covering the opposite direction, and retain the other leg as a pure positional trade. That recently happened with BAC, which broke out to the downside, prompting me to sell my calls but keep my puts.