We have never post the trades we shared with paying Earnings Alerts members
on the blog before the close, but we are making an exception today. Why? Two reasons; FB is reporting for the first time and we’re in a good mood from winning earnings trades in GOOG, BIDU, and LVS. So without further ado, here you go!
Today is one of those days you really have to keep an eye on slippage risk. There are a lot of familiar names reporting, but most of them have wide bid/ask (b/a) spreads which translate to slippage.
Among the names we took notice to are AMZN, KLAC, AMGN, NTGR, MXIM, SBUX, CTCT, NEM, DECK, and FB. After taking a closer look at each of these, we narrowed down our top three to AMZN (160% IV, 10 cent b/a spread), SBUX (122% IV, 4 cent b/a spread), and FB (214% IV, 5 cent b/a spread).
Of course all eyes are on FB as this is their first ever earnings report since the IPO. The underlying risk of having no past earnings reports to reference has taken IV on the Jul4 weeklies to 214%…whoa. Plenty of liquidity there with a 5 cent wide b/a spread, but a lot of risk on top of an already risky trading scenario (earnings based trading).
Well, we decided that since we are taking a much needed vacation next week (will fill you in with more details shortly) we want to trade all three! So here’s what we’re doing in very small size as usual…
Sell to open AMZN Jul4 195/200/235/240 Iron Condor @ 2.25 Limit (credit)
- buy one Jul4 195 Put, sell one Jul4 200 Put, sell one Jul4 235 Call, buy one Jul4 240 Call
- max gain $225 per spread if AMZN expires between 200 & 235
- lower break even 197.75, upper break even 237.25
- max loss $275 per spread below 195 or above 240
- AMZN has a tendency to move big on earnings, but we like the range and the credit received with this Iron Condor. Need defined risk given the history of being a big mover and price of the stock, and this fits the bill very well while exploiting a 160% IV on options that expire tomorrow.
Buy to open SBUX Jul4/Aug12 50 Put Calendar @ 0.60 Limit (debit)
- sell one Jul4 50 Put, buy one Aug12 50 Put
- max gain $155 per spread if SBUX Jul4 Put expires worthless then SBUX pegs 50 on Aug12 expiration
- lower break even 45.65, upper break even 54.95
- max loss $60 per spread below approx 40 or above approx 60
- SBUX has a tendency to peg strikes after earnings announcements. The 50 strike is major psychological price level and a perfect peg level for a stock that does not tend to move violently after reporting. This strategy provides a nice range, and optimally we will let the Jul4 50 Put expire worthless then sell the Aug1 weekly against the Aug12 long Put next week. Definitely a dice roll here, but we like it given we always stay small in size on earnings trades and the capital at risk here is not massive.
Sell to open FB Jul4 25/26 Put Spread @ 0.33 Limit (credit)
- buy one Jul4 25 Put, sell one Jul4 26 Put
- max gain $33 per spread if FB expires at or above 26
- break even 25.67
- max loss $67 per spread at or below 25
- We have no idea what to expect in FB earnings. What we do know is 26 has been a level where buyers have stepped in. We are taking advantage of the extremely high IV of 214% into earnings with this positive theta play based on the 26 support level. Keeping size very small and fingers crossed here.
Best of luck to anyone that follows our lead or creates their own earnings based strategies!
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