Via www.fivepercentstocks.com:
I am liking how a possible straddle of McMoRan Exploration (MMR) is setting up. The share price is nicely settled around an at-the-money position at $15. McMoRan has an average movement of -5.41% immediately following earnings. This makes the July and August contracts each look attractive. Of note, someone seems to be liking the stock ahead of earnings as it is up 5.19% in the last 3 days and every single option traded today was a Call.
Let’s say we enacted the strategy at 3:59 pm today. We would have purchased 10 July $15 Call contracts (MMRGC) and 10 Put contracts (MMRTC) each for $.45. Our total investment is now $900 plus fees. That means we need one of the options to expire at $.90 to break even. The share price would be near $15.90 or $14.10.
The issue with the July contracts is that we only have 5 market days for the stock to make its full move before the options expire. If we purchase the August contracts, we would have more time to ride the earnings momentum. In the month following the April earnings report, the stock dropped 14% (and only 5% in the following 5 days).
I do not currently have a position here, but will be keeping a close eye on (MMR).
$15.15 (07/12/07)
