A Basket approach for Earnings

I make an effort each week to do some Strategy comparison work. One area I do this for is Earnings. Here is a look at a Basket for Earnings AMC:

  • Simple approach, just Long Calls
  • 9 names
  • Some August weekly, some September monthly
  • Cost: $11.65 as of the time I collected the data

08212014_B

It is rare that I don’t like the prospects for this strategy and today is one of them. Notes on the graphic.

Trade Management starring Nordstrom

One of the normal realities in trading is the fact that not every trade can “work”. All a trader can do is execute a trade based on their Trading Process and manage the outcome. For traders that venture into Earnings trades, this is especially true since a post-Earnings reaction can often be out-sized and/or wild.

The overall success in your Trading will come down to how well you design trades – design trades to accommodate as many scenarios for price as possible while still being in a position to participate in a price move.

I have a trade on in $JWN and it will not make any additional money for me. Here are the specifics:

  • Long the August 70/72.5 1×2 Call Ratio
  • Short the August 62.5 Puts
  • This was done for a $.10 debit
  • This trade takes margin (at least until the uncovered short pieces are closed)

This is a current Daily chart:

JWN_post_Earnings

An Inverted Hammer has formed (a trend reversal signal, needs confirmation on Monday). Here is what happened to the Options:

JWN

If a trade is not going to work in your favor (provide more profits, move in the desired direction) then this is the ideal outcome. Poof at expiration.

Position Updates – 08/09/2014

I was not as active in the markets this week with new trades as I focused on managing existing positions. However, I do have some Newly added that survive to the weekend:

Exits:

Submarine Basket:

50/50 Basket:

Here is the Summary:

Positions_08092014

Options Expiration day – a look at Pioneer Natural Resources

For those familiar with Option trading you will find the following graphic of no surprise:

PXD_Aug08w_Options

Bid/Ask spreads. Ugh.

I am currently short the $230 Calls (2x, left over from a Call Ratio) and short the $205 Puts. One of the challenges on expiration day is to have the patience to let the bid/ask spread tighten so that you can close an Option in a reasonable way.

At the moment price is above $206 so the short Puts are OTM (out of the money). I obviously would prefer to not pay to buy them back (BtC – Buy to Close) and instead have them expire worthless. It seems the short Calls above will have no problem doing that :)

A trade review in CF Industries (in progress)

I currently have an Earnings trade in $CF and thought I would add a brief review of where things stand now. Here are the specifics:

Initial trade: Long August 08 weekly 252.5/260/265 1×2 Split Call Ratio with S 242.5 Puts for $.30 debit

Step(s) taken today:

  1. StC (sell to close) August 08w 252.5 Calls for 1.14 credit
  2. A sell short stop triggered at $205 (this is to protect the short Puts)
  3. I covered this short stock piece for +$2.33 this morning

So, this is what remains:

  • Short August 08 weekly 260 & 265 Calls
  • Short August 08 weekly 242.5 Puts

One reason I do stock hedges is to extract some $ from the market that I can later use to buy back short premium. Another reason that this step may be the only viable one at a given moment is explained here:

CF_Aug08w

S P R E A D in the bid/ask.

I currently have an Options Net of $.84 and a stock gain cushion of $2.33

Position Updates mid-week review

Newly added this week that still remain (or the remaining pieces):

  • $ELLI I am long stock. Swing
  • $REGN I am long the August 08 weekly 315/335 Call Spread. Swing
  • $WYNN I have an August 08 weekly 202.5/205/197.5 Risk Reversal Call Spread. I am short stock as a hedge on the Puts. Swing
  • $TGT I am long stock at $58 (1/4 size) and short the August 59/58 Strangle & August 08 weekly 57.5 Puts (1/4 size of each). Submarine Basket
  • $PXD I am short the $230 Calls (2x) and $205 Puts. I am short stock as a hedge on the Puts. Earnings
  • $FSLR I am long the August 64 Calls and short the August 08 weekly 52.5 Puts. Earnings
  • $ATVI I am short the August 08 weekly $24 Calls (2x) and long the 22/21 1×2 Put Ratio. Earnings
  • $Z I am long stock at 134.72 with an August 145/140/130 Collar Put Spread. Earnings
  • $CF I am short the $260 & $265 Calls as well as short the $242.5 Puts. Earnings

 

Earnings Trades update

A busy week with Earnings trades has come to a close. I posted a brief review Friday morning of trades with Weekly options that would be expiring: 08012014$EXPE was the only trade that I needed to adjust (created a 82/84 CS, which I let auto-exercise). I exited the capped Call Ratio in $TWTR. All other trades with remaining Options (mostly short) went poof.

 

 

Position Updates – 08/02/2014

We ended July with a big RED day and have started out August with a lot of continued indecision along with more distribution. I focused mainly on Earnings trades this week but did find a few opportunities for the normal accounts. Newly added that survive to the weekend:

  • $PCYC (a new trade this week in the Swing account)
  • $GRMN (Submarine Basket)

Exits this week (including newly added that did not survive):

50/50 Basket:

Submarine Basket:

08022014

Earnings:

Here is the Summary for Swing, Long-term, IRA accounts:

 

 

Positions_08022014_B