It is my opinion that reviewing Option chain data is important whether you actually trade Options or not. The information available in each chain has value that can – and should be – used in your overall Trading Process.
One area I like to research is the Unusually high volume list to see what stands out to me (there will always be something there). I did a quick video on this:
Disclosure: I have positions in $AMAT$CTXS for some clients
$CONN I am long stock at 29.25 with a short September $30 Straddle (Calls are covered)
$DE I am long the September 26 weekly 82/81/80 1×2 Split Put Ratio (takes margin). The 82/81 Put Spread is to play for further downside (in case I am a little early) and the short $80 Puts are a strike I don’t mind owning from
$VSI I am long the Oct/Nov 45 Call Calendar (was done for a $.85 credit)
Adjustments I made this week to existing positions:
$GNRC The long September $45 Calls hit a Stop on 09/09 (leaves a short Strangle now)
$TSCO The long stock piece hit a Stop on 09/09 (leaves short $65 Calls)
$WDAY I adjusted the short Calls to the September 26 weekly $92 strike (covered calls)
$GTAT L Sep/Sep 12w 18/17 Strangle Swap with extra Short September 22/14 Strangle. I am short stock (from 16.12) as a hedge. If price stays under $14 then I will let the stock piece get unwound for me. The short weekly $18 Calls will go poof. This would leave me Long the September 18/22 CS & 17/14 PS. Options Net: $.21
$VNET I am long stock at 14.92 with a September 22.5/21 Collar
$MBLY I have a December 55/50 Risk Reversal in the IRA (replaced $KNDI this week)
$CONN I am long stock at 29.15 and short the September 30 Straddle (Submarine Basket). Options Net: $1.80
$KKD LBW was the original trade. What is left: I am long the September 18/19 1×2 Call Ratio & short the 16 Puts (2x). Options Net: $.70 (Earnings)
$PANW I am long the September 12 weekly 90/95 1×2 Call Ratio with long stock at $95 (hedge). The plan is to let the CS auto-exercise and the long stock will get called away via the extra short $95 Calls – as long as price stays above $95. The short $85 Puts should go poof. Options Net: $.35 (Earnings)
I had offered a trade idea for $RH into Earnings and thought I would list a few potential exit paths to take if you executed this trade. Here was the trade idea:
Long the September 85/90 1×2 Call Ratio
Long the September 80/75 1×2 Put Ratio
At the time I posted the message this trade cost $.60
This trade would take margin (at least until the “extra” short Option pieces were closed)
Now that Earnings is done, price has settled around the $78.50 level so the Put Ratio side of the trade is winning. So now what?
For most traders, taking off the Put Ratio is the step they would take. However, it is often the case that price never probes the bottom of the Ratio so leaving the premium to expire is worthwhile.
To help with a visualization of this trade, consider looking at the Put Ratio in a different way:
Long the September 80/75 Put Spread
Short the September $75 Puts
Treat these as 2 separate trades
If you think price holds in this area until expiration then you would sell the Put Spread when you feel it has found a solid floor. You would then place a Stop on the remaining $75 Puts that you are short with the goal of them expiring worthless. You may even be ok with being Put stock at $75. If price does hold in this area, the Call Ratio obviously expires worthless at expiration too.
Your trade, your process.
Disclosure: I did not execute this trade before Earnings. I did trade the stock in after hours though – after the report.