No material changes to the Basket this week. A few positions earned dividends. I adjusted several Option pieces to September (or short August premium was allowed to expire worthless).
Here is the Summary:
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:
This is a current Daily chart:
An Inverted Hammer has formed (a trend reversal signal, needs confirmation on Monday). Here is what happened to the Options:
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.
I have been trading $ICPT this week (was a recent 50/50 Basket member as well) and found myself today evaluating my short stock trade as it approached the $300 level. I often will use a Bear Collar to protect a short stock position but decided to take a different path to participate in the “fade”.
This is the path I chose:
I covered the short stock piece (frees up a lot of margin) & switched to a long August 290/265 Put Spread (just under a $5 cost, debit). A solid 5:1 risk reward.
I am a big fan of Option Ratio trades for a variety of reasons (like low-cost, flexibility on exit, etc) and I did such a trade in $FOSL today for Earnings. First, a look at the specifics:
Let me break this down:
I am long the August $102 Puts
I am short the $97 & $93 Puts
I am short the $111 Calls
This trade was done for EVEN
This trade takes margin (at least until the upper & lower short pieces are closed)
Another way to look at this trade structure:
I am long the August 102/97 Put Spread
I am short the August 111/93 Strangle
In after hours price is at $99 so the Put Spread piece is in play (capped at $5)
A few new additions to the Basket this week: $DECK $GILD. The $HES position had one day above the $100 level but could not sustain it the next day so the count starts over (got soooo close on Friday).
Here is the Summary:
Fab 5 candidates:
* I actually don’t have any tickers that really stand out to me as candidates but a few that have held their recent pullbacks well:
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:
Here is the Summary:
For those familiar with Option trading you will find the following graphic of no surprise:
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
part of the Simple Approach series
One way to keep it simple for Earnings trades is to use Options. Pick a bias – bullish or bearish – and buy the appropriate Call(s) or Put(s).
I track trade ideas each week – whether I do a trade or not – and this data collection includes several different trade strategies. The purpose of this is to have data I can review later including strategy comparisons.
For this afternoon, here are 5 stocks that reported Earnings. I would approach this as a “Basket of stocks” and would have taken a Bullish stance on all 5. Here are my super deluxe notes:
One additional stock I would add is $SCTY – buying the August 08 weekly $76 Calls (closed at $2.80 today).
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:
So, this is what remains:
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:
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