On March 1, we grabbed call options on Interpublic Group of Companies (NYSE: IPG) to benefit from its typical earnings-related climb.
But that has failed to materialize so far.
We are now down nearly 70%, so today I want us to preserve our capital. Sticking to our stop-loss strategy, we will place a stop-loss order at a 75% loss.
By following this strategy, and using stop-loss orders in general, we allow our positions a little room to reverse. So let’s see if our Interpublic calls can turn around from here, allowing us to get out with a smaller loss — or possibly a gain.
I’ve been watching this position since we initiated it earlier this month — and the company pulled back after the initial 8% surge it experienced after its earnings report. A pullback isn’t unusual, but since then the stock has basically gone nowhere.
It hasn’t fallen significantly more or moved higher — it has essentially stagnated. And in options, that means we lose value.
So to preserve capital on Interpublic Group of Companies, go ahead and place a stop-loss at whatever would be a 75% loss for you.
For us, based on our official entry price of $0.58, that is $0.14.
Remember, you will need to cancel your standing orders to sell half the position for a 50% gain. Then you can place the following order:
|Action to Take – Place Stop-Loss|
|Stock:||The Interpublic Group of Companies Inc. (IPG)|
|Option Type:||Call Option|
|Action:||Sell to Close|
|Duration:||GTC (Good ‘Til Canceled)|
|Limit Price:||Whatever nets you a 75% loss.|
|Trade Deadline:||Keep this order open until it is filled or canceled.|
Remember, this trade has delivered gains in six out of the seven times it met parameters for trading. And gains were anywhere from 2.5% to more than 50% within two months. We still have about a month left in this trade, so there’s still a possibility that its earnings drift could kick in.
But if it doesn’t, at least we’ll have some of our capital protected. I’ll keep you updated and let you know if anything noteworthy happens with this position.
In the meantime, if you have any questions, please feel free to email me at firstname.lastname@example.org.
Chad Shoop, CMT
Editor, Earnings Drift Alert