a Trade Review starring Nuverra

I initiated an Earnings trade in $NES and thought it would be a good example of how a trade doesn’t work but the trade design keeps a trader from suffering any losses. I also want to show what some of the next steps can be – potential scenarios. Here is the trade:

NES

  • I am short the March 20 Calls
  • I am long the April 20/22.5 Call Spread
  • This was done for a small credit of $.05
  • This trade takes margin

The stock has reacted negatively to the Earnings report and likely will see price loiter down in the $16-$17 range for a while:

NES_BI was looking for a move up $19 at least but did not get that. So what now? Here are a few potential scenarios:

1) Price churns until March expiration (next Friday). The short March 20 Calls go poof, margin will be freed up. I would be left with an April 20/22.5 CS and the tiny initial credit

2) Price falls further to the 50 SMA. See #1

3) Price creeps up to $18. Still see #1

4) Price miraculously goes to $19. Uh, see #1

Leave a Reply

Your email address will not be published.