Earnings Trade Design starring VMware and Polaris Industries

As we head into the heart of Earnings season, my focus on this segment of my trading increases – it is where I find some of the best opportunities for new trades. I use Options as a key component to most trades for a variety of reasons: lower capital requirements & the flexibility to participate in the post-Earnings price reaction.

It is an important step for each trade to do a thorough review – and sometimes I like to share that info along the way (from trades that are still in progress). I have 2 new trades that I did yesterday and I thought I would review where things stand now that the Earnings event is over.

VMware ($VMW):

  • I am Long the October 24 weekly 91/95/82 Risk Reversal Call Spread
  • This means I am long the 91/95 Call Spread and short the $82 Puts
  • This trades takes margin this week (or until the short naked Puts are closed)
  • The trade was done for a .05 debit


The above chart shows the close from yesterday. The current price in pre-market trading is $84 so I will need to monitor the short Put strike. It does not appear that I can get any value out of the Call Spread.

Polaris Industries ($PII):

  • I am long stock at 146.84
  • I have a November 160/145/135 Collar Put Ratio
  • This means I am short the $160 Calls (covered by stock) and long the 145/135 Put Ratio (1×2)
  • This trade does take margin due to the Put Ratio (until at least 1x of the short $135 Puts are closed)
  • This trade was done for a .55 credit


The above chart shows the close from yesterday. The current price in pre-market trading is $149 but there has been very little volume (normal for this stock). With this trade design I can participate on any move up to $160 and I am protected down to $135 (+/- the credit received).

Market Vectors Oil Services

I have been looking for a bounce/reversal trade in this industry/sector but it continues to show weakness that can not be ignored. One perspective on this can be viewed on the $OIH Weekly chart:


Several points to make:

1) RSI has drifted down to near 30 (oversold level)
2) Rising Volume as price plunged this Summer into the Fall
3) MACD is falling, weak
4) The 200 SMA is just below – it did manage to hold it on the last 2 tests of it

When looking at the Option chains, it is worth noting that the Top OI (open interest) by far in October is on the Put side ($52 Puts lead the way with 17,713 contracts).

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:


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?


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:


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:


Here is the Summary:



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:


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: