Earnings Trades update

I am still on vacation but have taken some time this week to do a few new Earnings trades. Here is the Summary of existing positions (including the newly added this week):

  • $JCP  I am long the January 2015 $10 Straddle and short the October 31w 10/9.5 Strangle. I am short stock (hedge) at $9 (as of 10/08). Options Net: -$.56
  • $DPZ  I am long stock at $78 with a November 85/85/75 Collar PS. Options Net:   -$1.40
  • $NFLX  I am long the October 24 weekly 340/355 Call Spread. Options Net/cushion: $17.38
  • $GOOGL I am long stock at $504.92 with an October 24 weekly $540 Collar (2/3 size left). Options Net/cushion: $22.36
  • $CP  I am long the November 200/210/220 Call Fly and short the $180 Puts. Options Net: $1.05
  • $IBM  I am short the November 07 weekly $165 Puts (remaining part of a Put Calendar). Options Net: $3.10
  • $VMW  I own the October 24 weekly 91/95/82 Risk Reversal Call Spread. Options Net/cushion: $2.90
  • $PII  I am long stock at $146.84 with a November 150/150/135 Collar Put Ratio (originally was 160/145/135). Options Net: $1.30

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

VMW_G

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

PII_B

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).

Earnings Trade Ideas for Apple & Chipotle

For $AAPL:

Long Oct 24 weekly 102/104/95 Risk Reversal CS. This means you are long the 102/104 Call Spread and short the $95 Puts. This trade can be done for a small credit, takes margin, and you must be comfortable owning at $95 (or you can adjust to next week – or further out expiration if desired/necessary)

For $CMG:

Long the October 24 weekly 650/675/700 Call Fly with Short $575 Puts. This trade can be done for a $1.75 credit (and takes margin)

 

Position Updates

Personal Accounts

I was active in the Swing account again this week but only one newly added position survived to the weekend:

  • $LMT  Long the November 180/190/195 Call Fly with a short October 185/170 Strangle

Submarine Basket update here

50/50 Basket update here

Earnings Trades:

  • $AZO  I own an October 510/520/530 Call Fly (have a Buy Stop set at $520 as a hedge). Options Net: $1.16
  • $JCP  I am long the January $10 Straddle & short the October 10 weekly $10.5 Straddle. Options Net: -$.68
  • $RRGB  I am long stock at $49.9 and short the December 60/55 Strangle. Options Net: $4.45
  • $SNX  I am short the October 65/60 Strangle and long stock at $65 (hedge). Options Net: $5.21 (new this week)

Here is the Summary:

Positions_10042014

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