Under the hood – Earnings Trades prep

Whether you elect to create trades for Earnings reports or not it is important to be aware of your existing positions – and when those companies report. If you are doing a specific trade for Earnings or will be holding an existing position through the report, I recommend that you monitor Option flow in the relevant option chain to see how traders are leaning. Of course there are a variety of agendas & strategies being initiated – any skew should be noted (it’s when the Put/Call ratio is balanced that things get more difficult, indecision).

In my opinion there are a lot of benefits to having a trading process that includes a focus on Earnings trades. Here are just a few:

1) By using a process to create Earnings trades – and collecting a LOT of relevant data for a database – you will become more knowledgeable on how well/poor a company is performing vs expectations

2) You learn just how often a reaction to an Earnings report is NOT what you expected – and why a focus on Trade Design is of utmost importance

3) With the continued growth of Weekly options, you can participate in unique trade structures for very little cost (the trade-off being risk you take on). The ole Risk/Reward equation

I maintain a large database of company info that includes Earnings report information which comes from a variety of sources (including my own views/assessments). Here is a snapshot of the area where I note any Trade Idea that I like for each particular reporting company:


The 2 most common trades I do are:

If Bullish:

Risk Reversal CS (this means I would short Puts and be long a Call Spread)

Call Ratio with short Puts (or PS) – this means I am long Calls and short Calls above (2x) and short Puts or Put Spread below

If Bearish:

Risk Reversal PS (this means I would short Calls and be long a Put Spread)

Put Ratio with short Calls (or CS)  - this means I am long Puts and short Puts below (2x) and short Calls or Call Spread above

If Neutral:

Short Straddle or Strangle

Double-Banger (Long a Call Ratio and Put Ratio) – I want to Look Both Ways if I use this trade strategy

One additional thing to note here: I have as a step in the process to use stock as a hedge – and this becomes important from time to time. Any time price reaches the outer boundary of a trade (near the short Calls above or the short Puts below) that is when a hedge is utilized. For an example let’s look at $CMI from above:

The outer boundary would be: $155 above and $145 below

Position Update – 07/25/2014

A focus on Earnings trades again this week with a few normal Swing trades thrown in for good measure. Newly added this week that survive to the weekend:

  • $HLF  I own the Aug 01 weekly 55/70/55 Risk Reversal CS
  • $PBYI  I am short the Sep/Aug $230 Call Calendar
  • $PKG  I am short the August 70/65 Strangle (remaining pieces from a RRCS)
  • $SODA  I am short stock with an August 01 weekly $31.5 Bear Collar
  • $MAN  I am long the August 80/85/80 Risk Reversal Call Spread
  • $PVH  I am long the August 115/120/110 Risk Reversal Call Spread
  • $PBYI  This is a different position than the Swing account position, this one is in the 50/50 Basket: short stock at $220.35

Exits this week (including newly added this week that didn’t survive):

Here is the Summary:


An Earnings trade review in Starbucks

We are now well into Earnings season and so there will be more info from me on trades for Earnings reports. I review each trade the same – whether it is deemed a success or a fizzle – to ensure that I am complying with my overall trading process.

There are not many traders that discuss trades that are deemed a failure so I thought I would do a blog post on how the $SBUX trade has played out. Here is the trade specifics:


  • I am Long the July 25 weekly 80/82/83 1×2 Split Call Ratio. Another way to look at this is: I am Long the 80/82 Call Spread and short the $83 Calls as well = a 1:2 Long/Short Ratio
  • I am Short the July 25 weekly $77 Puts
  • This was done for a $.14 credit
  • This trade takes margin

Now on to the Daily chart to see how $SBUX reacted:


A nice Doji for today (indecision) as traders negotiate for a new price for the stock after the Earnings report. For my trade, I can get very little value for the Long $80 Calls right here. The other 3 pieces are trading at a penny or two.

So the result is: I don’t get much more in additional value out of the trade beyond the initial credit – and I expect all 4 pieces to expire today. Was this trade a success? Not in terms of providing additional profit no. Did it allow me to participate for the potential reward? Yes.

I would also add one more thought here: keeping the cost down to a minimum (or even being paid to put the trade on, a credit) is a key element to my trading design. I accomplished that here so maybe it was a success after all … feel free to chime in with comments below.

Earnings Trades update

Now that we are in the heart of Earnings season, a great deal of my new positions are focused in this area. Newly added for this week so far:

  • $SANM  I am long the August 23/25 CS & short the August 24/20 Strangle on a 3:2 Ratio (for some clients)
  • $NFLX  The remaining pieces are: short July 25w 470 & 480 Calls, short the 400 Puts
  • $CNC  I am long the August 77.5/80 1×2 Call Ratio & long the August 75/72.5/70 1×2 Split Call Ratio (the Double Banger trade, look both ways)
  • $PII  I am long the August 135/140 Call Spread & short the 125 Puts
  • $VMW  The remaining pieces are: short July 25w 102 & 108 Calls, short the 88 Puts


An Earnings trade in Netflix

I’ve been getting questions today surrounding my $NFLX Earnings trade so I thought I’d do a brief review here. The trade:

  • Long July 25 weekly 450/470/480 1×2 Split Call Ratio with Short 400 Puts. This means I am long the $450 Calls & short the $470 & $480 Calls as well as short the $400 Puts
  • Trade was done for a $.35 debit
  • This trade takes margin

I have done a few stock short trades (scalps) in after hours.

So what now?

The ideal scenario for this trade is to drift up to near the $470 level by Friday expiration so that I can get optimum value from the long $450 Calls. The 2 levels I need to watch are $480 & $400 (any movement towards here and I have to be ready to hedge with stock or BtC the relevant short Options).


An Earnings trade idea in ManpowerGroup

I posted a trade idea on @Stocktwits earlier this week but wanted to follow up with a few data points. First, a look at the idea again:

  • Long the August 85/90 1×2 Call Ratio
  • Short the August 75 Puts
  • This trade closed at a $.20 debit Friday
  • This trade would take margin until the short Puts and one set of Calls are closed

Here is the Option chain info:


As you can see above, the August $90 Calls have the largest Open Interest by far.

Here is the Daily chart:


A few scenarios to consider:

1) price moves above the $85 level but avoids $90. StC the August $85 Calls when you see price stall for your time-frame. This would leave the short 90 Calls (2x) and the 75 Puts (a Short Strangle) until closed

2) price goes nowhere. No harm, no foul. The small debit for this trade is your cost to participate

3) price goes down to the $75 level (near the April lows). If you are comfortable owning there (you did sell the Puts at that strike) then let the stock get put to you



Position Updates

This was a very typical Options expiration week with a few surprises along the way to my Plan posted last weekend. Aside from the focus on existing positions with July options, I did manage to add new positions that survive to the weekend: $CHL $INTC $KNDI $JPM $SWKS $CBI $GNRC.

Exits (primarily due to July Options expiration plan):



50/50 Basket:

Here is the Summary:



Earnings Trades update

We have officially kicked off the new Quarter Earnings season so I expect to see my focus continue to increase in this area of my trading. I was light this week on new trades but will end the week with new positions (left over short July pieces) in $PSMT & $TCS.

Here is the Summary:



Position Updates

I did an update earlier this week summarizing the trading activity this week here and all the newly added positions survived to the weekend (exception is $LL but I already noted that it was exited).

Submarine Basket:


50/50 Basket update was done on the blog Thursday. No material changes on Friday.

Here is the Summary: