Quick Update - Keeping All My Shares of AYX and DDOG, Bought some Puts heading into earnings.

Earnings get crazy. I’m a huge fan of both of these companies and I think they’ll blow it out of the water with their earnings on February 13th.

But Alteryx is 21% of my portfolio and DDOG is 15%. So with both stocks trading near all-time highs, I felt like it was a good opportunity to protect my portfolio from short-term negative reactions after earnings.

Sometimes, companies like these can report stellar earnings and the stock still sells off only to recover later.

It’s important to understand why I did this. I’m protecting my portfolio from a significant (20%+ sell-off) in these stocks after earnings. I’m willing to risk the premiums I paid for that protection.

I don’t do this regularly and it will probably result in me losing money (I hope that happens because that means AYX and DDOG will go up!)

Here’s exactly what I did.

I already owned 798 shares of AYX. That’s roughly $110k with shares trading at $142.93.

To “protect” that position, I bought 8 February 21st, 2020 expiration $140 puts for $6.00 each. Each contract represents 100 shares so if we multiple the $6.00 per contract by 100 we get $600, then multiple that by 8 and we get my cost basis on these puts of $4,800.

So what could happen?

Scenario 1. Alteryx could go up after earnings. As an example, if AYX jumps by 10% after earnings which means my shares increase by $11k in value and my puts expire worthless… meaning I lose that $4,800.

Scenario 2. Alteryx stays where it’s at. My shares are still worth $110k and my puts are worth $0…meaning I lose that $4,800.

Scenario 3. Alteryx drops by 10% after earnings. That would bring the share price down to around $126. My shares lose about $11k in value and my puts will each be profitable by the following amount: $140 - $6.00 (the premium I paid) = $134 - $126 (what the share price would be) = $8.00 x 100 x 8 = $6,400 of profit.

So that makes up for half the losses.

For every $1.00 Alteryx drops below $126, my Puts are worth another $800 in profit. So if it were to drop to $120, that adds another $4,800 of profit for a total profit of $11,200.

You can do the same calculations to Datadog using the framework above. I own 1,600 shares and bought 16 $48.00 Feb 21, 2020 Puts.

I’m not trying to instill any fear in anyone. We all need to make our own decisions and I’ll be the first to say this probably won’t work out in my favor… but I’m sharing for transparency's sake.

If you’re a paying subscriber, head over to the comments sections on the most recent weekly update for our live discussion after AYX, DDOG, and ROKU earnings on Feb 13.

You can also comment on this post and I’ll reply.

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