I received a lot of questions and inquiries on my current $LZB earnings trade so I thought I would put my thoughts together in a post. I normally follow this stock and had noted in my Estimize post that I had noted some weak Furniture sales data in a recent consumer report. However, the chart looked strong into earnings and the Option flow looked positive as well so I wanted to be Bullish but have a nice cushion if wrong.
With that said, I did the following trade:
- Long stock at 19.68
- Short the July 20 Straddle (1/2 position) for 2.50 credit
Here is a breakdown:
- I am long stock
- I am short the July 20 Call & Put but just a 1/2 position. This means I am capping my gain at 22.50 on 1/2 of the stock piece, but am vulnerable to price staying under the $20 level for a 1/2 position based on the short Put piece. The $2.50 cushion is nice but this requires focus on the post-reaction move, in this case after hours trading
Here is how it unfolded:
I got a nice pop after hours once the report was released but it stalled quickly so I sold the stock – increasing my cushion. As the stock continued to weakened, I elected to go ahead and short any move under that $20 level. I held this short overnight as noted.
Currently price is near the 19.35 level so the short stock piece is hedging the Short 20 Put nicely. Now the trade is in maintenance mode as I work it to keep as much of that cushion as possible.
NBA basketball is finishing up its season with a thrilling Finals between the Heat & the Spurs. So with that in mind, I thought I would come up with a basketball analogy to show how taking that one extra step can make a real difference between success and failure.
In my current $LULU post-earnings trade, I took that one extra step (made that one extra pass) to ensure that my trade had some protection (have much improved probability of success):
Here is the trade breakdown:
- I am Short the June 67.5 Put (I picked this level due to it being the lowest Put strike with significant OI)
- I am Long the June 70/72.5 Call Spread
- This trade cost me a nickel
I typically look for areas where I feel traders are putting stakes in the ground, but sometimes I am simply too early. With this trade I saw some continued weakness so I decided to add a Long June 14 weekly 67.5 Put at a $.50 debit (protects the Short June monthly Put). So far this protection has been key as price is currently hovering near the $66 level.
OI = Open Interest
One of the common trade catalysts that I trade is earnings releases and typically utilize Options for one key reason: control risk of capital. There are many traders that avoid holding stock through earnings and that is certainly fine for their approach/style. For me, I want to participate in the earnings reaction so I frequently look for trades where there is a good expected move and there is ample Option volume.
A trade I put on today was in $ULTA and involved 3 pieces:
Short the June 90 Call
Long the July 90/95 Call Spread
This was done for a .48 credit
This is not a typical trade in that I am short a lot of Call premium — with the goal of playing an initial pullback and a rebound later in July. At least that is the plan when I do this type of trade.
The initial after hours reaction was positive, then a little shake, and then a run to test $90. With this trade structure I only have one task: hedge the short June 90 Call by going long stock (which I did). So now what?
What I have now is a covered call for June and I am long a July call spread. However, another view is to do this as an exit:
Sell the July/June 90 Call Calendar pieces tomorrow leaving me long stock with the short July 95 Call. Clear as mud? LoL
As I write this the stock is trading at $92 in after hours.
We are into the final month of this earnings reporting season so things begin to slow down in terms of the number of reports each day. This is a good time to review existing earnings trades (personal accounts):
- $ESRX I am short the June 55 Puts from 04/29. These currently have a bid/ask of .04/.07 so it seems prudent to just buy them back here
- $ASNA I am short the September 21 Call from 06/04, the remaining piece, and look to take off very soon. The bid/ask is currently .20/.30
- $DG I have a June 50/50/52.50 Risk Reversal Call Spread trade on (short the 50 Put, long the 50/52.50 Call Spread) from 06/05. This trade is looking good so far with the Puts trading at .30 and the Call Spread trading at 1.50
- $COO I am long the June 105 Put from 06/06, the remaining piece, and it is likely to go poof given that price is currently above $119 post-earnings
One key element in successful trading is in knowing when a trade needs to be adjusted. In order for this to occur efficiently, the initial trade design needs to provide some flexibility to maneuver. I have a half position left in $GME & coming in to today this is what it looked like:
Short the June 31 Put
Long the 32 Call
The 2 Option pieces are viewed as a Bear Collar
The stock has been pushing up this week & today it hit my trail stop on the stock piece. This left me with the 2 Option pieces noted above — which now become a regular Risk Reversal trade given that there is no stock piece.
Now the trade is on offense.
You can view the Position Updates post from this past weekend for more details on the initial trade.
I have a long stock position in my Submarine Basket and decided to use Options to protect into earnings on 5/29:
Here is a breakdown of this Short Call/PS:
I am short the June 60 Call
I am short the June 60 Put & long the June 55 Put
I collected 5.74 for these Options pieces
The downside on the Put spread is capped at $5 so the $55 level is key to watch for my stock position (there would be a $.74 cushion to work within this scenario)
The upside is capped at 65.74 (a more ideal scenario, lol)
One of the key earnings releases this week was in $PCLN and I wanted to be sure to have a trade in place that could benefit from the expected move. The May 10 weekly 735 straddle had priced in a $43 move. I spent a fair amount of time throughout the day Thursday designing a trade that I was both comfortable with but could benefit from an upside move.
Here was the trade:
- Long the May 10 weekly 740/750 Call Spread
- Long the May 10 weekly 660 Put (1/2 position)
- Short the July 660 Put (1/2 position)
This trade was done for a $.35 credit and any upside move would be capped at the 750 strike (plus small credit). A downside flush would be protected by the long weekly Put. Important.
The plan for exit was obviously to benefit from an upside move and sell the call spread. After the release in the after hours trading session, I did short the stock for a small scalp to build a bigger cushion. The stock held up well the rest of the evening and this morning began to drift up once the pre-market trading opened up. A welcome surprise.
The plan was still the same:
- Work the long Call Spread for whatever value I could. It eventually went ITM (in the money) so the gain was capped and I exited
- The long weekly 660 Put will go poof this weekend
- I will remain short the July 660 Put for now (currently trading under $4)
I have owned $CRUS for a while now and the use of Options has helped offset the decline in price (too much reliance on $AAPL). I have owned the May 20 Put and on the post-earnings reaction I had one simple thing to do: sell an upside Call against my stock.
I chose to sell the May 20 Call – collecting $.80 in premium – to complete the Collar. Now today the stock is pulling back so a review of the Option premium movement from the Collar shows just how important owning a Collar can be:
- The May 20 Call is now at a .25/.30 bid/ask — down from the 1.05 close yesterday
- The May 20 Put is now at a 2.00/2.15 bid/ask — up from the 1.14 close yesterday
- The stock is down $1.40 from the close yesterday
As price has pulled back today, both side of the Collar begin to win which helps to more than offset the decline in share price.
I try to do this mid-week but so busy this week with the enormous number of earnings releases. Here are my current Earnings trades:
- $PVH I am Long the May 115/120 Call spread (remaining pieces from a trade)
- $NFLX I am Long the April 26 weekly 125 Put, Short the April 26 weekly 225 Call, Short the June 125 Put & June 240 Call (Short a June Strangle). I expect the April 26 weekly pieces to go poof
- $OXY Long the May 85/87.5 Call Spread & Short the June/Apr 26 weekly 80 Put Cal
- $CAT I am short the May 77.5 Put
I did a pre-earnings trade in $AAPL involving both stock & options. Here it is:
- I am Long stock at 406.45
- I am Long the April 26 weekly 405 Put
- I am Short the April 26 weekly 425 Call
Above are a few of the messages that I posted that were relevant to my trading in $AAPL yesterday and today. The pop in the stock in after hours was short-lived so I exited the long stock position. I managed the remaining option pieces this morning (had become a Bear Risk Reversal).
The significant moves in both directions was not expected and allowed me to work the Bear R/R for additional gain. The long stock hedge in pre-market proved to be pivotal in adding to the gains, very pivotal.
The final exit steps: