A Good Day Spoiled by Unexpected After Hours Earnings

As I mentioned a number of times, currently my core positions in my trading account are in TZA and SPXU, the bear ETF’s.   Today with the deadlock on raising the debt ceiling not showing any hint of resolution, the broad market went down over 2% with the NASDAQ down over 2.5%.  It was a rare break for my portfolio.  As the market is quite oversold, I sold half of my positions today and plan to buy them back on any rebound.

As I celebrated a day of relief and looking over charts after dinner, my jaw dropped.  I didn’t realize GMCR had earnings today and it rocketed over 18% after hours: from 88.11 at the close to 104.50.  And I was short GMCR via a bearish call spread!!  I have 1 short on Sept 90 hedged with 1 long Sept 100.   Needless to say, my stomach immediately felt sick.   If the option expires tomorrow with price of 104.50, my short contract would lose ($1,450) and the long contract would profit $450.   That’s a net loss capped at ($1,000).  OK, I collected the premium of $210 for the spread in the beginning, so that bring the loss down to ($790).  Today I happened to have bought 20 shares of stock at 90.68 as a hedge (thank God), so at 104.50, these shares would help offset the loss by $276, bringing the net loss down to $514.   My stomach is still sick, but man, this made me realize the importance of having to hedge a position in case it goes terribly wrong!  At least I should be able to sleep tonight knowing that my loss is capped.

Look at the GMCR chart at the close, before earnings.  It was down big along with the rest of the market today.  That’s why I was especially dumb-founded when I saw the GMCR quotes after hours.  You can also see why I had decided to buy some small shares to hedge my bearish call spread — my position has been sucking wind for a while and today I felt the need to buy some shares.

The unexpected earnings date once again spooked me big time. Checking earnings dates once again proves paramount and yet hard to keep up with the diligence.  While we’re on the topic of earnings date, UIS earnings yesterday was another one that I wasn’t aware of.  But man, why couldn’t the surprise go the other way?!  Hello, jinx!

Portfolio Value: $135,000 (this is going to be immediately slashed come tomorrow due to GMCR earnings)

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