Options – how to play for IV (Implied Volatility) decrease

One of the key approaches to Earnings trades is to sell elevated Options (high IV) because the expectation of what happens after: IV implodes after the event. To illustrate this concept I bring you a current trade in Synnex that I initiated yesterday for Earnings AMC 09/29:

  • I went short the $SNX October 65/60 Strangle for a $4.15 credit

This provided me a range of $55.85 to $69.15 to work with. Price did get above $67 in after hours but has settled back inside the Strangle range today (ideal). So now let’s take a look at the aftermath.

This is what happened today to the October Option chain:

SNX_Oct_Options_B

For a trade like this – where the goal is to sell the elevated premium – this is the result you are looking for. The Earnings event is over and the IV returns back to near normal levels.

For anyone that is in this trade, you have a few choices you can make:

1) Do nothing. As long as price stays within the 60-65 range, the Option values will continue to decay into Expiry in 3 weeks

2) Buy back the short premium for $2.20 here – thus booking a gain of $1.95

 

Gaming the Options in GameStop

I have a position in $GME for the long-term account (since 05/22/2014). I currently own the following:

  • I am long the October 41/46 Call Spread
  • I am short the September 26 weekly 43 Calls (2x)
  • This created a Split Call Fly

Do what?

GME

The above graphic shows this latest trade adjustment where I decided to take advantage of the volatility this week to sell some premium. The goal here was to take in some Weekly premium that I thought had a good chance to expire – thus boosting my Options Net. This did not take margin.

Price is currently hovering below $43 so these short Calls have a great change to go poof (and I can then consider doing this again next week, etc).

Just one way to “trade around” a core position.

 

The RSI Buy signal starring InvenSense

part of the Simple Approach series

 

It appears that $INVN is in the “sell the news” category right now as it loses the 200 SMA today:

INVN

With that said, is there a Buy opportunity on the horizon after this capitulation? If you follow the RSI Buy pattern I say yes. It is worth eyeing for a bounce off of the $20 level soon – and that will likely coincide with RSI hitting the 30 level.

Ways to play a bounce:

1) Buy stock, use your Stop setting

2) Sell Puts

3) Buy Calls

4) Combine #2 & #3 to make a Risk Reversal

5) Sell a Put Calendar

6) Buy a Call Calendar

Positions Update – 09/20/2014

A very active week on the news/event front with the Scottish Independence vote, the Fed, and the $BABA IPO. What kept me busy however was the September monthly Options expiration. I had to tend to most positions as the majority had September options as part of the trade so that is where my focus was this week.

Some notable activity in existing positions as well as a couple of newly added ones:

  • $COL I had BtO the October $75 Straddle on 09/16 due to my feeling that the Options were very cheap. The news on Friday helped to give some direction on which side was going to win
  • $DRC I have owned an Option trade since 08/15 due to some very large Option volume that was growing in the September Option chain. Big news this week to pop the stock over the $80 level (have long stock as well)
  • $PEIX I was long stock with an October Collar coming into this week. Boy did things change. I let the stock piece hit a Stop at B/E on 09/15 which meant the Collar became a Bear Risk Reversal (I as short some September 17 Puts which I adjusted to October so now a BRRPS). The market changed its mind – so I did too
  • $SLXP was a big surprise for me on the Dip Buy. A much larger bounce than anticipated
  • $YHOO I shorted this on Friday as it seemed that it was an obvious trade now that $BABA was going to be trading – and Yahoo gets its cash (a lot of debate should now ensue on the value of Yahoo as a business)

50/50 Basket:

  • $DGLY I am short stock at 21.75 (since 09/15)
  • $TKMR I am short stock at 25.04 (since 08/11) with a Diagonal Bear Collar Call Spread (L October 17.5/25 CS, S December 17.5 Puts)

Earnings Trades:

  • $JCP I am Long the January $10 Straddle & Short the October 03w 11 Straddle (a Straddle Swap)
  • $RRGB I am Long stock at 49.90 and Short the December 60/55 Strangle
  • $TSL Long the October 14/15 Call Spread (for some clients)
  • $MOV Long the October 45 Calls (was part of a Call Calendar, will make a Call Fly soon, for some clients)

Submarine Basket:

09202014

Here is the Summary:

Positions_09202014

 

The Simple Approach – using RSI as a Buy/Sell signal

part of the Simple Approach series of posts

The subject for this post is Potash as the Daily chart has a nice clean flow of RSI Buy/Sell signals. Here is the $POT chart:

POT_C

As you can see there are numerous areas on this chart where RSI tests 70, 40 or 30 levels making for a smooth trading process (long and short). Here is a 2 minute video as I walk through this chart:

A Strangle Swap in GT Advanced Tech

One of the more anticipated news event is the Apple product announcement today. One of the potential benefactors is $GTAT and so I put on the following trade yesterday to play for an IV crush:

GTAT

Here is a breakdown of the trade:

  • I am Long the September 18/17 Strangle
  • I am Short the September 12 weekly 18/17 Strangle
  • I am Short the September 22/14 Strangle
  • This trade takes margin
  • This trade paid me a $.21 credit

So how does this trade work? Let’s view another way to look at the trade:

  • I am long the September 18/22 CS
  • I am long the September 17/14 PS
  • I am short the September 12 weekly 18/17 Strangle

Once the $AAPL event is over – and the $GTAT news is available – I am looking for the weekly Option IV to implode. As long as it stays within the 14-22 range I can look to do any necessary adjustments this Friday (if price stays in this $17-18 area, yippee).

GTAT_B

 

A trade idea breakdown in John Deere

A Put Ratio in $DE using the September 26 weekly Options:

I would be looking for the $82 Puts to get ITM (in the money) by expiration

DE_Sep26w_Options

A few scenarios to consider:
1) Price is at $81 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit.
2) Price is at $80 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit. I would then evaluate if I want to be Put stock at $80 or not. I could consider adjusting those short $80 Puts to a future expiration as a possible step.
3) Price is at $85 at expiry. The Put Ratio goes poof.

A diamond in the rough

Oh yes I did.

Each weekend I run a variety of proprietary scans to look for potential new trading setups for the upcoming week. Although I have a rather full plate in terms of the number of positions, I do have some room in the Submarine Basket now. With that in mind, I wanted to focus on stocks that have pulled back to a good potential Support/bounce area.

One stock that caught my eye was $DO and here area a few graphics to ponder:

DO DO_Oct

RSI briefly tested the 30 level in March – look what happened after. RSI is back to arm wrestle the level again so I would look for history to rhyme. One additional data point I’ll add here: 22.6% short interest is some serious fuel for the fire if it can bounce from the Hammer it formed on Friday.

Someone was very hungry for the October $45 Calls on Friday …