Treat Options spread prices like a hot woman at a bar. Open with an ice breaker (analyze using risk profile), convey that you have value (confirm and send the order), then show her your willing to lose her and make her chase you (send the order with a limit price and stick to it).
I never filled on the TSLA Nov2 150/155/200/205 Iron Condor I tried working a few more at varying prices as low as 1.60, but none of them filled either. While watching the mark, I saw it pop to 1.67 while my 1.60, 1.61, 1.62, 1.63, 1.64, and 1.65’s were working and still no fill on any of them.
I got frustrated and made a last minute attempt to fill on a TSLA earnings trade. I worked the Nov2 140/210 Strangle @ the 1.72 credit mid price and it filled immediately. This put me 2x outside the expected move, so it worked out nicely. I shared the fill here since there was not enough time to send it out to Earnings Alert members.
Not sure what it was about the Iron Condor, but that sucker did not want to fill. The Options looked liquid enough for an execution at 1.60 at the very least when the mark was 1.67, but no dice.
I assume nobody filled the Iron Condor as I had several working at prices lower than the 1.65 limit I shared. That may be a good thing as the trade was break even after commissions earlier this morning during my typical exit period (first 30-45 minutes of trading, 60 minutes max wait period).
As far as the Strangle goes, I covered it @ 0.37 debit for +1.35 at 10:15am EST this morning.
Here’s the trade alert that went out to Earnings Trade Alerts members before the close.
TSLA, Z, OPEN, AGU, VCLK are among today’s top candidates. The problem is all but TSLA have bid/ask spreads that are too wide to accept in relation to their price. Given the 177 price of TSLA, I can be a little more flexible with the 5-15 cent bid/ask spread in TSLA Options. With that in mind, TSLA is today’s earnings trade (small size as always with earnings trades).
Earnings Trade Candidate: TSLA
Easy to Borrow (ETB): yes
Liquid Options: ample OI & volume, bid/ask spread of 5-15 cents
Offers Weekly Options: yes, Nov2
IV differential: approx 2.2x, 145% front month IV vs. approx 65% historical IV
Current Price: 177.25
Expected Earnings Move: +/- 19.10
Expected Move Range: 158.15 - 196.35
Copy the trade below and paste it into our recommended broker, thinkorswim (adjust number of contracts according to your capital risk preferences).
SELL -1 IRON CONDOR TSLA 100 (Weeklys) NOV2 13 200/205/155/150 CALL/PUT @1.65 LMT
Iron Condor Legs (per spread):
Buy 1 TSLA Nov2 150 Put (debit from account)
Sell 1 TSLA Nov2 155 Put (credit to account)
Sell 1 TSLA Nov2 200 Call (credit to account)
Buy 1 TSLA Nov2 205 Call (debit from account)
Max Potential Gain: $165 per spread if TSLA expires expires between 155 & 200
Max Potential Loss: $335 if TSLA expires below 150 or above 205
Break Even: 153.35 lower b/e, 201.65 upper b/e
Explanation: This is a tough one for me. Premium is much richer on the Call side than the Put side, which means the public opinion is a bullish response to earnings. That makes me want to sell the rich premium on the Call side mores that the Put side, but I’m not quite sure I’m comfortable with any element of my strategic approach to TSLA earnings being a Naked Option. After much thought, I decided to stick with a defined risk play even though my gut is screaming “stay away of go 2x outside the expected move!”
This Iron Condor puts me slightly outside 1x the expected move range while providing a credit of just over 30% the width of the spread (5). With defined risk on my side, the opportunity to get any wider is not attractive.
Another trade I have strongly considered and still may do in very small size is the following bearish Jade Lizard.
SELL -1 1/1/-1 CUSTOM TSLA 100 (Weeklys) NOV2 13/NOV2 13/NOV2 13 215/150/149 CALL/PUT/PUT @1.30 LMT
The reason I like this trade so much is it would put me 2x the expected upside move , 1.4x the expected downside move, and the only risk is associated with a massive upside blowout reaction to earnings. An upside blowout is possible, but 2x outside the expected move is always a cozy place to be. Worst case on the downside is making $30 no matter how low it goes.
Here’s a risk profile of the TSLA Iron Condor (includes the Short Strangle and Bearish Jade Lizard I considered unchecked in the bottom portion as well):
NOTE: Trading Options into earnings includes financial risks and may result in loss of capital. Do not consider an earnings based Options strategy unless you understand and accept the capital risks associated with the trade.
It’s official, I am not placing any earnings based trades today. We have had too good a run to screw it up with a moderately illiquid Options market in FSLR. It’s not horrible, but it’s not good enough.
FSLR does have an enciting IV differential. With 182% IV on the Nov1 weeklys that expire tomorrow vs approx 65% historical IV, it has an IV differential of approx 2.8x. Well deserved considering how large some of the recent earnings moves have been from a percentage perspective.
For those of you wanting to place a trade in FSLR despite the moderate lack of liquidity in the Options, I have two ideas I would personally consider if I were trading it.