Trade Management starring Nordstrom

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:

  • Long the August 70/72.5 1×2 Call Ratio
  • Short the August 62.5 Puts
  • This was done for a $.10 debit
  • This trade takes margin (at least until the uncovered short pieces are closed)

This is a current Daily chart:

JWN_post_Earnings

An Inverted Hammer has formed (a trend reversal signal, needs confirmation on Monday). Here is what happened to the Options:

JWN

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.

Different ways to participate

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:

IMG_1246.PNG

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.

An Earnings Trade in Fossil

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:

IMG_1245.PNG

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)

The Fab 5 update

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:

08092014

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:

$PEP
$CI
$QCOR
$MJN

Position Updates – 08/09/2014

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:

Exits:

Submarine Basket:

50/50 Basket:

Here is the Summary:

Positions_08092014

Options Expiration day – a look at Pioneer Natural Resources

For those familiar with Option trading you will find the following graphic of no surprise:

PXD_Aug08w_Options

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 :)

Earnings Trades – a Simple Approach

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:

IMG_1238.JPG

One additional stock I would add is $SCTY – buying the August 08 weekly $76 Calls (closed at $2.80 today).

A trade review in CF Industries (in progress)

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:

  1. StC (sell to close) August 08w 252.5 Calls for 1.14 credit
  2. A sell short stop triggered at $205 (this is to protect the short Puts)
  3. I covered this short stock piece for +$2.33 this morning

So, this is what remains:

  • Short August 08 weekly 260 & 265 Calls
  • Short August 08 weekly 242.5 Puts

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:

CF_Aug08w

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