Options Update: Dell’s Earnings Call

Computer-maker ^DELL^ will find its way into the earnings spotlight this week, as the company will let the Street know its quarterly results after the closing bell on Thursday. Currently, the Street’s consensus estimate calls for earnings of 27 cents per share on revenue of $12.57 billion. When Dell has reported earnings in the past, there has been a surprise – either upside or downside of at least 3.6%; indicating that the stock has had solid impetus for a move to the positive or the negative side (the last earnings miss was by nearly 15% and caused some tribulation for the stock).

On Friday, there was a fair amount of action around the 14 level (it closed Friday at $13.84). With February expiration looming this week, The February 14 strike saw nearly 6,000 calls cross the tape and slightly more than 5,000 puts trade. Some of these transactions were likely closing positions in the expiring month; but surely there were some speculators at play.

With the 14 strike being so close-to-the-money, the delta is nearly equal on both the call and the put. The delta for the put stands at 54 and for the call 45. A $1 move in either direction could result in a 54-cent or a 45-cent profit per option, respectively.

One potential strategy traders could have been employing is a straddle. A good move in either direction would lead to a profit for straddle buyers. Though DELL has been in a range of late, the fickle finger of earnings has the potential to cause a break out.

Dan Passarelli is the author of the book Trading Option Greeks and founder and CEO of Market Taker Mentoring LLC. Passarelli began his trading career trading on the floors of the Chicago Board Options Exchange and the Chicago Board of Trade making markets in options. He regularly shares trading insights and educational tips in his options blog (markettaker.com/options_blog/). Dan can be reached through his website MarketTaker.com and can also be followed on Twitter at twitter.com/Dan_Passarelli.

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