Looting a Call Fly

For those that are not familiar with a Call Fly, here is how it is structured:

  • Long a Call. This is the bottom of the Call Fly
  • Short 2 Calls at a strike (or more above). This is middle of the Call Fly
  • Long a Call above the short Calls. This is the top of the Call Fly

This trade structure will be for a debit (I often sell Puts below to pay for it).

So what does it mean to loot a Call Fly? This is really a made-up term from me but this is what I am referring to:

You have a Call Fly and the stock moves up enough to where the bottom of Call Fly is ITM (in the money). However, it doesn’t have enough momentum to get near the middle of the Call Fly. What I often do now is StC (Sell to Close) the long Calls (bottom of the Call Fly) thus leaving the rest of the Call Fly (middle, top). You want the remaining pieces to all expire worthless. By doing this though I increase the Risk (I would be short 2x Calls in this situation) so I always set a Buy Stop near the middle Call(s) strike (would act as a hedge).

Here is a recent trade where I did just that:

Lennar $LEN

I initially opened a long July 50/52.5/55 Call Fly with short $47 Puts on 6/23 for Earnings. The stock did move up near the $52 level but stalled and pulled back. I StC the $50 Calls thus leaving the rest of the trade. I then set a Buy Stop at $51.25 on 6/25 (which has triggered).

 

– DM 9:40 AM CST

 

Earnings preview: Sonic Corp

SONC_IV

One of the reasons I prefer selling a July Strangle for earnings is the usual elevated IV on the earnings ramp. Here is another reason:

SONC

Price is approaching this Breakout Box as it runs up into Earnings.

Who is left to buy?

I like selling the July 35/30 Strangle and collecting $1

– DM 9:40 AM CST

 

Earnings preview for Adobe and FedEx

Weekly charts

ADBE_B

I like the June 80/82.5/85/75 Risk Reversal Call Fly for an ADBE earnings trade (long the 80/82.5/85 Call Fly and short the $75 puts).

FDX_weekly

I have an existing position in FDX but for an earnings trade consider this:

Long the June 182.5/185 Call Spread
Short the June 177.5 Puts
Cost: $.20 credit
Takes margin

– DM 10:40 AM CST

 

Verifone earnings preview

PAY_C

The June 39/38 Strangle is pricing in a $1.90 move for Earnings AMC 6/4 for $PAY. The chart above shows price in a very interesting spot, hovering in the apex of this Ascending Triangle.

For an Earnings trade, I like this:

Long the 39/41 CS
Short the $37 Puts
Cost:  EVEN
Takes margin until (the short Puts are closed)

– DM 10:05 AM CST

 

Current Buy or Sell Short Stops

Buy Stop:

Puma Bio $PBYI  set at $150 (a very early hedge on short Sep $225 Calls, Submarine Basket)

Autodesk $ADSK  set at $56 (Earnings)

Ulta Salons $ULTA  set at $157 (a very early hedge on short June $165 Calls, 2x size, Earnings)

Sell Short Stop:

Hershey $HSY  set at $90.50 (would be a hedge for short June $90 Puts, Submarine Basket)

Ross Stores $ROST  set at $95.5 (would be a hedge for short June $95 Puts, Earnings)

 

 

– DM 9:40 AM CST

 

 

Ambarella earnings preview

AMBA

Above is the EPS graph on $AMBA via Estimize.

Now let’s look at a Daily chart:

AMBA_B

The stock is a bit extended from the recent breakout level in my opinion. Nonetheless I like the following trade for Earnings:

Long the June 05w 95/100/105 Call Fly
Short the June 05w $84 Puts
Cost: small credit

Note:  the June 05w $91 straddle is pricing in a $6.50 move

– DM Noon CST