UNG, the natural gas ETF, has had a consistently bullish trend for the past year, though it’s showing signs of cycling toward the lower end of its wavelength. Here we’ve got a cross below the 50-day simple moving average, which has served as a significant technical indicator on multiple occasions - both as the signal of a bullish cycle and the most recent bearish cycle.
We’re not necessarily advocating a trade, because the 200-day SMA still exists as significant support, but if the price gets down to the 200-day (the red line on the chart) then we’ll start looking at putting in a bullish trade and playing a rebound. Big moves in commodities don’t happen in a vacuum - there’s a lot of repercussions across the market when oil/gas/fuel prices drop.
Again - we’re not advocating a trade (yet), but this is the kind of setup that often converts into an actionable idea.
Forgive the mess that is on the chart above, but we’re using two regression channels to demonstrate the change in the slope and speed of the recent bullish run in the US markets. The white regression channel is nearly a year long, and begins with a cross above the 200-day simple moving average (the second most recent one). The black regression channel starts at the most recent cross below and above the 200-day SMA, and shows the most recent bullish run.
Notice that, while both are bullish, even substantially so, the shorter channel has more severe upward tilt and has a tighter range, indicating that there’s been less actual volatility in stock prices during its tenure. With this week’s jump in market prices we’re getting close to the top of the white channel, and we’ve got three significant levels of support on the downside with the two moving averages and the lower end of the black channel.
What we’re seeing is a sustained run, and there’s no reason to think the larger bullish run is over, though we may be in for a slight pullback or some neutral action now that earnings season is nearly over.
NFLX, fresh off another earnings-announcement boost, looks like it’s living in a castle in the clouds. We predicted a slight pullback a few weeks ago, but didn’t trade the stock because of the earnings risk, and we’re glad we stayed away. Now that we’re past the cycle and there’s 2.5 months until another announcement, we may be able to sell some premium in the stock and make some quick profit.
It’s possible that NFLX may close the gap established by earnings, and it seems extremely unlikely that it will return to lower levels than previously established, so we feel pretty comfortable with selling premium (like a bull put spread) underneath the stock’s current price. We also may look at something neutral, like a butterfly or calendar, with the hopes that the stock may “pin” to its post-earnings price for a month or two, like it did in the after the last earnings announcement.
Either way, we’ll likely have a trade ready to roll on this stock soon, as NFLX is forcing itself back into the realm of the high-volume, high-price options darlings like AAPL, GOOG, AMZN, and others.
Like most US equities, MCD has been on a tear since the start of the year, pausing only to test its 50-day simple moving average. It’s since resumed it’s climb but has stalled near previous highs (highlighted on the chart above), leading us to predict we may have a meaningful resistance level here. Not all DOW stocks are outperforming right now, and McDonalds is an example of small weakness with respect to the rest of the index.
We’ve had mixed success trading this stock, but we’ll continue to look at it for trade ideas. Here we’d consider a bear call spread, or possibly an iron condor or other price-neutral trade, given the resistance above $101 and the possible continued support from the 50-day SMA (the yellow line).
We’ve got yet another update on AAPL, which seems to be continuing its breakout nicely. This is a nice development for those shareholders who kept the stock for the last two earnings cycles, and for those speculators who picked the stock up at sub-$450 price over the last few months.
It’s hard to believe that this extended slump has lasted well over half a year, as it feels like just yesterday that we were hearing analysts predict AAPL would become the first trillion dollar company. There’s certainly some prospects for continued growth here, and we’re obviously interested in future developments.
It’s safe to say that AAPL isn’t the market leader it was last year, but it’s still hugely relevant in determining market sentiment and a perfectly viable product for trading.
With LNKD trading @ 184 premarket, the probability is extremely high that the May1 165/240 Short Strangle will expire worthless. With that in mind, it’s time to put on our finest Kentucky Oaks apparel and hit the track to continue this win streak!
We filled two Strangles @ 0.78, and two more @ 0.96 for an average credit of 0.87. Couldn’t resist that second round when we saw the pop in price for this Strangle. Assuming this does in fact expire worthless and we realize max profit we will make $87 per spread, totaling $348. Not bad for an overnight trade.
It’s Friday so no trade as usual. Have a great weekend, and be sure to tune in for the Kentucky Oaks today @ 5:45pm EST and Kentucky Derby tomorrow @ 6:24pm EST!
This chart of TLT (the Treasury Bond ETF) is a classic example of a set of moving average crossovers. Around January 1st, the 20-day simple moving average crossed below the 200-day SMA, and after 4 months below the long-term average price, it’s just now crossed above. Aside from the obvious technical importance, this is also a pretty strong sign that the bullish run in the market may be stalling, as TLT tends to move inversely to SPY and other market ETFs.
There’s still not a trade here, as the implied volatility and premium in the ETF is too low for short-term trades. We do like seeing these signs that bearish action may be upon us, as it means implied volatility may come back into the markets, opening up new trading opportunities for us to take advantage of.
What more is there to say about AAPL? We’re looking again at a breakout above the 50-day simple moving average (the yellow line), but again this could be a good or bad sign for shareholders, depending on how long the break is sustained. The last time we got a peak above the 50-day SMA it lasted only for a couple days, and we haven’t returned to those levels.
For any bullish run to be sustained, the price will have to find a bottom to rally off of, to give investors some sense of a maximum loss of a new buy-in. That may have occurred with the dip below $400, but something tells us we aren’t going to just see a nice diagonal line heading upward. That means we should have more opportunities to enter a bullish trade, so we’ll hold off until we have a little more faith in a sustained move.
Today’s spike downard was the largest single-day drop in UNG in the last 12 months. It’s an interesting technical move because it may invalidate what had been strong support from the upward-trending 20-day moving average (the green line on the chart). If the natural gas ETF doesn’t hold the 50-day SMA (the yellow line), then we could be looking at prices as low as $18 in the early summer.
This may be a fluke, and the ETF may recover its price quickly, but if this drop is sustained, we could be looking at a significant resistance level that sticks for the rest of the year. That would be bad for owners of the ETF, but good for us, as it would give us a new basis from which to establish short credit spreads on the top end of this range.
GLD, the gold ETF, closed the big gap from last month in only the loosest definition, barely touching the low that forms the top of this previous gap. Since that closure it’s moved downward again, meaning exuberant buyers from after the drop took profits when the gap was closed (see the larger highlighted box).
There’s still another gap to be closed (the smaller box on top), but it seems unlikely it will happen soon, given the strength of the downward trend in GLD and the general uptrend in the market. We’d likely sell an iron condor here - or some other neutral strategy - if you twisted our arm, but we’re not being forced to trade anything here. We’ll continue to wait and look at other indicators while we look for a good opportunity to jump in.
UPDATE 1 (3:14pm EST): filled two strangles @ 0.78 credit
UPDATE 2 (3:31pm EST): filled two strangles @ 0.96 credit, avg of 0.87 credit
It’s Derby week here in Louisville, KY so for the sake of good fun and successful betting, we are sharing today’s LNKD earnings trade (below) with everyone before the close, not just our awesome members.
Check out the rest of the blog to view all our earnings trade from this season and past seasons. If you like what you see, we invite you to become a member today for only $199/year.
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After closer analysis, LNKD & AIG are our top candidates for the day. AIG doesn’t have quite the opportunity that LNKD does, but LNKD has a very wide bid/ask spread. The bid/ask spread coupled with the fact we will be at Churchill Downs tomorrow morning for Kentucky Oaks makes us weary of trading LNKD, but we have decided to put on a couple very wide Short Strangles. After all, it’s Derby week!
Earnings Trade Candidate: LNKD
Easy to Borrow (ETB): yes
Liquid Options: strong OI & volume, very wide bid/ask spread of approx 30-40 cents
Offers Weekly Options: yes, May1
IV differential: approx 3.6x, 163% front month IV vs. approx 45% historical IV
Current Price: 199.85
Expected Earnings Move: +/- 17.60
Expected Move Range: 182.25 - 217.45
Trade Strategy:
Copy the trade below and paste it into our recommended broker, thinkorswim (adjust number of contracts according to your capital risk preferences).
SELL -1 STRANGLE LNKD 100 (Weeklys) MAY1 13 240/165 CALL/PUT @.75 LMT
Short Strangle Legs (per spread):
Sell 1 LNKD May1 165 Put (credit to account)
Sell 1 LNKD May1 240 Call (credit to account)
Max Potential Gain: $75 per spread if LNKD expires between 165.00 & 240.00
Max Potential Loss: theoretically unlimited, but BP effect of $2,000 per spread is more probable max loss.
Break Even: 164.24 lower b/e, 240.75 upper b/e
Explanation: This is not the type of strangle we typically play into earnings. We want to get extra wide with LNKD because we have no clue how this baby is going to react. It’s at all time highs and extremely rich from a valuation perspective, so a miss could send it tanking lower. That said, given the buy side momentum, a beat could send the stock soaring. The most likely occurrence is a move within the expected move range, but we went 2x outside that lower end of the range and 2.3x outside the upper end of the range to be extra cautious.
With a buying power effect of $2,000 per strangle, this isn’t for everybody. These options expire tomorrow, so the capital is only tied up for a day.
We likely won’t have a chance to send out an exit follow up in the morning, but hopefully LNKD will stay within this massive range and we can simply let the Strangle expire worthless for max gain. If there’s a huge move we’ll do our best to let you know what we intend to do.
Here’s a chart of LNKD showing the profit range (green oval): 
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. Furthermore, we ALWAYS keep position size small when playing earnings based trades.
FB is settling in nicely today. The stock is currently trading at 28.25, well within the max profit range of the FB May1 24/31 Short Strangle we played.
The Risk Profile is currently showing a 100% probability of the Strangle expiring worthless tomorrow for max profit. We would say more like 98% since there’s always a chance for rally, tank, or unforeseen event. Regardless, we have decided to hold with the intention of letting the Strangle expire worthless for max profit of $25 per spread. Excellent trade!
If we see price action in FB that makes us decide to leg out of the Strangle, we will share our actions with you.
Today’s list of earnings trade candidates includes LNKD, DRIV, FLR, ZAGG, Z, MGM, NILE, OPEN, AIG, among others. AIG & MGM have the tightest bid/ask spreads of the bunch. LNKD has the biggest IV differential, but with a bid/ask spread of approx 0.40 we may have to pass on it.
Lastly, tomorrow is Kentucky Oaks and TickerTank HQ will be closed. If an earnings trade is placed today, it is not likely there will be an exit follow up tomorrow as the plan is to be a few Mimosa’s deep at Churchill Downs by 11am EST. There’s nothing like Derby week here in Louisville, KY!
Earnings Trade Alert members received this alert @ 3:13pm EST today. We filled the Strangle @ 0.25 credit. Get in on the action, sign up now!
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Quite a few earnings trade cadidates today. FB, TSO, & LVS being the best. STX, V, SFLY, & YELP being decent as well. And then there WLT which is supposed to report during the trading session tomorrow which may be the best sleeper play we’ve seen in a long time. All that being said, we’re sticking with the most liquid and opportunistic of the bunch which is FB (as you may have guessed).
Earnings Trade Candidate: FB
Easy to Borrow (ETB): yes
Liquid Options: strong OI & volume, bid/ask spread of approx 1-3 cents
Offers Weekly Options: yes, May1
IV differential: approx 2.55x, 115% front month IV vs. approx 45% historical IV
Current Price: 27.50
Expected Earnings Move: +/- 2.10
Expected Move Range: 25.40 - 29.60
Trade Strategy:
Copy the trade below and paste it into our recommended broker, thinkorswim (adjust number of contracts according to your capital risk preferences).
SELL -1 STRANGLE FB 100 (Weeklys) MAY1 13 31/24 CALL/PUT @.22 LMT
Short Strangle Legs (per spread):
Sell 1 FB May1 24 Put (credit to account)
Sell 1 FB May1 31 Call (credit to account)
Max Potential Gain: $22 per spread if FB expires between 22.00 & 31.00
Max Potential Loss: theoretically unlimited, but BP effect of $280 per spread is more probable max loss.
Break Even: 23.78 lower b/e, 31.22 upper b/e
Explanation: May1 weekly options expire this Friday and the IV on FB May1’s is approx 115%. That’s a lot of IV a very little duration…a nice combo when trading earnings based strategies.
When trading Short Strangles into earnings, we like to get at least 1.5x outside the expected move range while obtaining a credit equal to or greater than 1% the price of the stock. We are just shy of both objectives in this case, so we took a closer look.
We like the fact that FB is a low priced stock which enables us to sell a few strangles without eating up a ton of buying power. We also feel comfortable being long FB from 23.78 or short from 31.22, so while the credit is somewhat small we decided to risk a little capital on this strategy.
This is a high risk strategy with undefined risk. Follow us at your own risk! As always, we keep position size small on every earnings trade…especially when the risk is undefined like this trade.
Here’s a 6-month chart of FB showing the profit range (green oval): 
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. Furthermore, we ALWAYS keep position size small when playing earnings based trades.
Fed Maintains QE Pace, Prepared to Alter as Economy Evolves -
The Federal Reserve said it will maintain its bond buying at a pace of $85 billion a month and is prepared to raise or lower the level of purchases as economic conditions evolve.
There are several names reporting earnings today after the bell and tomorrow morning before the bell. Among them are GNW, RGC, AUY, VRTX, JMBA, FLEX, MTW, LEAP, CLX, H, & MRK.
Nothing on this list is even close to meeting our earnings trade criteria. The only candidate that offers weekly options is MRK so it would qualify as the best candidate, but with implied volatility on May1 weekly’s of 55% vs 45% historical there’s simply not enough juice.
Yesterday was a similar situation. We noted that if forced we would have sold the X May1 16.50 Puts @ 0.20 limit, which would have been a moderately profitable trade. Today there is absolutely nothing we would trade even if theoretically forced.
Tomorrow & Thursday should bring us solid earnings trade opportunities. Until then…
