Estee Lauder (EL) earnings play with Ichimoku

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On January 28, 2015, we bought the Jan 2016 82.5 Call option for $1.75 when price was at $70.50. This was an earnings play with an out of the money option. The technical setup indicated a high probability of a positive earnings creating a bullish thesis.

August 17 EL earnings chart

Given we had time on our side, we held the option through the next earnings cycle on May 5th as well and received a further pop getting our option deep in the money well before our January 2016 expiry.

However, on Friday, a day before the August 17th earnings release, we exited our option as we did not want to hold it for the earnings this Monday. We exited for a price of $9.20. Below is a screenshot of the order fill with “X” indicating information that is blacklined.

August 17 EL trade

This resulted in a 425% gain on our initial investment.

As you can see, the decision to exit was good based on our technical analysis as well as our knowledge on the greeks of the option.

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