Financial Sector ETF XLF has had its biggest down day in 6 weeks today, and we’re looking at lower volume and market movement as the biggest reasons. We really like that it’s a pull-back towards an already-existing channel, and we’re excited to see what happens if the ETF breaks its 20-day simple moving average this afternoon. 

As you can see in the picture, we’re predicting range bound movement between $16.50 and $15.50, with a possible drop all the way to $15.25. What we really look for in a move like this is a sustained drop of about $0.50, though the ETF may have trouble breaking its 50-day simple moving average. 

If you want to trade this and you’re unsure what strategy to use, a debit strategy may be in order. In low-cost securities selling options is often not optimal, because there’s not enough premium to justify the risk that you take. Here a simple put spread, or maybe a put butterfly, could do the trick nicely. 

Of course, we’ll let you know if we decide to publish a trade on this security. Until then, good luck! 

Stop number three on this 20 on 20 merry-go-round is $XLF, the famous Financial Sector ETF. XLF has a reputation for being “volatile in a range”, meaning that it rarely breaks out of an upper or lower bound, but within those borders anything goes. 

We’ve got a nice range drawn on this chart that has been useful in the past, with $16 being a meaningful resistance level. Below that, the 200-day simple moving average (traditionally an effective measure of the market’s value of the security) is floating upwards, at about $15 and change. This creates a dollar-wide range for expected prices in December, and gives us a starting place when looking for a trade. 

We’ve seen a nice pop up early this week, which is in line with a ton of other stocks. What we’re not seeing is a decent options trade to go with it, which is a function of a low stock price (comparatively) and low implied volatility. Well, if you want to put a trade on XLF then you’ll have to get a little creative. We see the 15 put butterfly and 16 call butterfly as equally decent options - it just depends on which direction you think the stock will move before December expiration (hint: it could be both). 

Not to be hard on AAPL, but this morning we’re seeing another down day in everybody’s new favorite bearish play. We’ll continue to see $525 the next relevant support level until it’s broken. Right now options implied volatility is pretty smooth across the next few months, meaning that this move doesn’t seem like a short-term thing that will drastically change soon. If anything, it seems like traders are planning for AAPL to stay down in this $540-$560 range for a little while longer. 

We’re still looking for ways to take advantage of increased volatility while protecting ourselves from a bigger downward move. Right now it’s still looking a little unpredictable and we’re staying away from new trades, but you may see us post a new credit spread for our members soon. Additionally, if we see a move coming it might be a chance for a quick directional calendar or butterfly trade. 

Members, stay tuned! And if you’re not a member, you can become one here! 

The definition of “humble brag”, from urbandictionary.com: “When you, usually consciously, try to get away with bragging about yourself by couching it in a phony display of humility.” 

Example: “I bet tickertank Premier Members are really happy that UNG did exactly what we thought it would do when we released our Butterfly trade last week.”

Excuse our need to pat our own backs on this one, but since sending UNG 21/22/23 Butterfly spread last week to our premier members, the natural gas ETF dipped back down to 22, on the day we predicted, and we exited the trade at the price we predicted we would.

If this trade didn’t hit your email inbox last week, it’s probably because you’re not a premier member… but don’t worry, you can fix that! Click here and sign up, and then you can humble brag to your friends about all your extra trading knowledge :)

“P.S. - Get earnings-season trade alerts with Earnings Alerts for only $99/year. This limited time Special Offer expires Thursday October 18th @ 11:59pm PST - be sure to get in, because there are no exceptions! 

Baidu (BIDU) continues to hold steady above our previously-established support range of 101-111. After a quick dip last month, the 111 level has proven to be a solid foundation, and now we’re beginning to see the moving averages bottom out, and potentially head back north. Earnings will be announced late this month, so we’re looking for a trade that will benefit from an increase in implied volatility for the next few weeks. Premier members, stay tuned - this will likely be a debit strategy, maybe a call spread or a butterfly for a medium-term duration. 

The VIX (S&P 500 Volatility Index) has taken a jagged path lower since mid-summer highs near 28. Now it’s back down to annual lows around 13, and we’re very much interested. This isn’t necessarily a trading opportunity for VIX options themselves, although buying a VIX call spread for the November election period is certainly enticing, we’re really interested in what a low VIX does to the price of debit spreads on other securities. Remember, a debit spread isn’t just that vertical spread you pay money for, but can also refer to any spread-based strategy that involves laying out cash, like a calendar or butterfly. We’ve send a few of these trades to our premier members lately and they’ve been working well in this environment. We’ll continue to watch these volatility levels as we press on. 

A few days ago we passed along to our premier members a trade idea in XLF, specifically, a butterfly spread designed to profit from a pullback in the price of this financial-sector ETF. Well, in evaluating this trade we’re noticing a potential new source of support near $16, and we’re wondering how long this will hold. It’s a very, very short term mark right now, but it was the top of a relevant price range for more than a month earlier this year. We’ll check back after September options expire this weekend and see if there’s more meat here to chew on. 

While we try to be unemotional about our trading, sometimes we’ve got to step in and let the world know when things go really well. Last week we sent out a trade idea to our premier members, an INTC butterfly spread, after predicting a short term bounce in INTC prices based on the above chart. 

We were right - after entering at .44 and getting out at .67 (a 50% gain!) INTC almost immediately tumbled below the established resistance point and is now operating without a net, meaning there is no support level in sight.

This is an excellent example of using risk-defined options strategies to place short-term trades and increase profit. If we had just bought the stock to bet on a bounce we’d have paid $2400 to take a $100 gain, as opposed to paying $44 to make a $23 gain. If we had done 5 of the butterflies, that would be $220 to make $115, the same cash return on 9% of the capital investment. Not bad! 

Another earnings trade was sent to members before the close today.  Today’s play was in OPEN.  Information received can be read below, feel free to ask questions.

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We have a live one today.  OPEN reports after the bell, and not only are the options liquid, but the implied volatility (IV) levels are approx 2.5x historical IV.  The only downside is the stock is hard to borrow, but I am comfortable proceeding with a small earnings based trade regardless.

OPEN is trading at 49.00 with an expected earnings move of 7.00. This gives it an expected move range of 42.00 - 56.00.  Feb IV is 120%, Mar IV is 83%, and historical IV is around 45%.

I looked at several stratgies, and the one I went with is similar to the WYNN trade a few days ago but with a butterfly on the lower end as well.  My earnings trade is as follows….
Sold OPEN Feb 35/60 Strangle @ 1.00 credit (sell one feb 35 put, sell one feb 60 call)
Bought OPEN Feb 32.50/35/37.50 Put Butterfly @ 0.15 debit (buy one feb 32.50 put, sell two feb 35 puts, buy one feb 37.50 put)
Bought OPEN Feb 55/60/65 Call Butterfly @ 0.50 debit (buy one feb 55 call, sell two feb 60 calls, buy one feb 65 call)
This results in a credit of 0.35 per spread, which you will keep if OPEN expires between 37.50 and 55. Profits increase significantly the closer OPEN expires to either the 35 or 65 price points, which mak one or the other Butterfly profitable.  The breakevens are 33.55 and 62.65, allowing OPEN to move 2x the expected move in either direction before this strategy starts losing money.

This strategy makes a lot of sense to me. I think there is potential for a big move in OPEN (bigger than expected), and this strategy allows me to profit if that big move occurs.  If that big move doesn’t occur, it’s still a profitable trade.

OPEN will have to move 31.50% lower or 27.90% higher to make this trade a loser.  That’s possible, but not probable which is exactly how I like it.

Keep in mind this trade has multiple legs and has potential to be heavy on transactional costs depending on your rates.  If your rates cut into the $35/spread minimum potential profit too much, consider doing something else.

An alrnative trade we like is the Feb 40/42.50/55/57.50 Iron Condor @ 1.00 (buy one feb 40 put, sell one feb 42.50 put, sell on feb 55 call, buy one feb 57.50 call).

Good luck if you decide to play it.  Enter at your own risk, earnings trade are not for the faint of heart.