Here’s the GOOG Earnings Strategy Alert that members received at 2:54pm EST today. Join the Earnings Alert family today!
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Our favorite earnings candidates today are GOOG & IBM. The rest of the names on the potential candidates list we shared in the SNDK exit details email have super wide bid/ask spreads or lack options volume. We decided to go with GOOG…we like the strategic choices better than IBM. Small position, live to fight another day if wrong.
As always, we are simply sharing what we are going to do. Follow at your own risk.
Earnings Trade Candidate: GOOG
Easy to Borrow (ETB): yes
Liquid Options: strong OI & volume, wide bid/ask spread of 30-50 cents
Offers Weekly Options: n/a. Apr expiration is tomorrow
IV differential: approx 2.8x, 84% front month IV vs. approx 30% historical IV
Current Price: 766.40
Expected Earnings Move: +/- 35.40
Expected Move Range: 731.00 - 801.80
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 IRON CONDOR GOOG 100 APR 13 800/805/730/725 CALL/PUT @2.00 LMT
Iron Condor Legs (per spread):
Buy 1 GOOG Apr 725 Put (debit from account)
Sell 1 GOOG Apr 730 Put (credit to account)
Sell 1 GOOG Apr 800 Call (credit to account)
Buy 1 GOOG Apr 805 Call (debit from account)
Max Potential Gain: $200 per spread if GOOG expires expires between 730 & 800
Max Potential Loss: $300 if GOOG expires below 725 or above 805
Break Even: 728.00 lower b/e, 802.00 upper b/e
Explanation: GOOG has a very wide bid/ask spread which we tend to stay away from, but GOOG is one of the few we give a pass to given the massive options volume and open interest. It could be a huge swing, so we don’t want to sell a strangle. We need defined risk here to feel comfortable, and small size as usual since it’s an earnings based trade. With that in mind, we went with the Iron Condor which gets us 1x outside the expected move range (so it puts us right at both ends of the range) and provides a credit of 40% the width of the spread assuming a 2.00 credit fill. We usually look for a 30% credit on a 1x outside the expected move Iron Condor, so this pricing is favorable.
This Iron Condor gave us a little more wiggle room on the downside All in all, we like it enough to give it a shot.
Here’s a risk plot profile and 6-month chart showing the profits zone (green oval) of the GOOG Iron Condor:
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.
We sent the following Earnings Trade Alert to Earnings Alert Members at 3:14pm EST. The AAPL trade filled @ 1.80 credit, and the NFLX trade filled @ 1.35 credit as noted.
If you would like to start receiving these alerts with plenty of time to act, sign up for our Earnings Trade Alerts today!
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Today’s top earnings trade candidates are FFIV, AAPL, NFLX, & SNDK. As you might imagine, we could not resist trading AAPL like we couldn’t resist GOOG yday. We chose the same strategy we used with GOOG, but went a little wider and accepted a little lower credit. This will increase our probability of success while also keeping our risk defined and capital requirements low in this high dollar stock.
Aside from the AAPL trade we are sharing in detail below, we could not resist getting a little extra risky with a Short Strangle play in NFLX. Why would we do this? Well, the 179% implied volatility on the Jan4 weeklies vs. 55% hist IV translates to a 3.25x IV differential. That’s juicy and we had to put a little extra risk on the table today as a result.
We sold the NFLX Jan4 80/120 Strangle @ 1.35 credit. Just one, nothing big. The Buying Power Effect (BP Effect) is approx $1,390, which means the probability of losing more than $1,390 is extremely low. The strangle puts us 2x outside the downside expected move and approx 1.6x outside the upside expected move.
As always, we are simply sharing what we did. Follow at your own risk.
Earnings Trade Candidate: AAPL
Easy to Borrow (ETB): yes
Liquid Options: solid OI & volume, wide bid/ask spread of 5-15 cents
Offers Weekly Options: yes, Jan4
IV differential: approx 2.7x, 95% front month IV vs. approx 35% historical IV
Current Price: 513.10
Expected Earnings Move: +/- 31.50
Expected Move Range: 481.60 - 544.60
Trade Strategy:
Selling (to open) AAPL Jan4 470/475/550/555 Iron Condor @ 1.75 Day Limit (credit)
Iron Condor Legs (per spread):
Buy 1 AAPL Jan4 470 Put (debit from account)
Sell 1 AAPL Jan4 475 Put (credit to account)
Sell 1 AAPL Jan4 550 Call (credit to account)
Buy 1 AAPL Jan4 555 Call (debit from account)
Max Potential Gain: $175 per spread if AAPL expires expires between 475 & 550
Max Potential Loss: $325 if AAPL expires below 470 or above 555
Break Even: 473.25 lower b/e, 551.75 upper b/e
Explanation: When selling Iron Condor’s into earnings, we look for a credit equal to or greater than 30% the width of the spread on an IC that gets 1x the expected move range. In this case, we have the opportunity of getting a credit of 35% the width of the spread (1.75/5.00) on an IC that puts us approx 1.3x outside the expected move.
The greater than 1x width of the IC profit range coupled with the psychological strength of the price points of the short legs (475 & 550) makes this a trade we are willing to risk some capital on. As always, we are staying small in size given this is a high risk Earnings based trade strategy.
Here’s a risk plot profile of the Iron Condor and a chart of AAPL 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.
p.s. You don’t want to miss another one of our trades, so be sure to sign up for our Earnings Trade Alerts here!
GOOG rallied strong off earnings. Even with the strong rally after the earnings report, we had a winner on our hands well into after hours yesterday. This morning GOOG extended higher, taking the stock above our Iron Condor’s upper break even.
We have two choices here: hold and hope GOOG pulls back into the profit range, or exit now and take a loss. Being this is an earnings trade and we exit the next day on 95% of our earnings positions, we decided it was time to exit after watching price action all morning.
We just covered the GOOG Jan4 740/745 Call Spread side of the Iron Condor @ 3.15. We intend to let the Put Spread side of the IC expire worthless given how far out of the money it is.
Assuming the Put Spread expires worthless (highly probable and optimal scenario), the loss on this trade will be 1.05 based on the 2.10 credit entry fill price. As always, we kept size small and fully intend to place another earnings trade today!
p.s. If you liked this trade, be sure to catch the rest of our Earnings Alerts as a TickerTank member. Sign up here!
RAX is currently down 6%, trading at approximately 62.15. All suggested trades are profitable!
On entry, we filled @ 1.85 on the Iron Condor and 0.80 on the Short Strangle. We are going to cover the Iron Condor now @ 1.00 limit for a gain of $85 per spread. We are also going to cover the Short Strangle @ 0.30 for a gain of $50 per spread.
Had we also entered the Bear Call Spread we mentioned in our earnings alert, we would be covering it now @ 0.60 for a gain of $165 per spread. Taking on more risk with the directional play pays off when you’re right!
We are officially becoming cocky this earnings season, which means we should probably take a day off. Good thing we have plans to attend a meeting of bright minds at Churchill Downs Finish Line Suites today, which means there will be no time to analyze and release an earnings trade alert.
We’ll be back for more on Thursday if the earnings Gods provide. Excellent trading!!
P.S. - If you would like to join the Earnings Trade Alerts family, click here.
Here’s the earnings trade we shared with Earnings Trade Alerts subscribers @ 3:20pm EST. We filled the Iron Condor @ 1.85 credit and the Short Strangle @ 0.80 credit. We passed on the vertical.
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Earnings Trade Candidate: RAX
Easy to Borrow (ETB): yes
Liquid Options: plenty of OI & volume, bid/ask spread of approx 15 cents
Offers Weekly Options: no
IV differential: approx 1.9x, 76% front month IV vs. approx 40% historical IV
Current Price: 65.95
Expected Earnings Move: +/- 5.95
Expected Move Range: 60.00 - 71.90
Trade Strategy:
Selling (to open) RAX Nov12 55/60/70/75 Iron Condor @ 1.80 Day Limit (credit)
Iron Condor Legs (per spread):
Buy 1 RAX Nov12 55 Put (debit from account)
Sell 1 RAX Nov12 60 Put (credit to account)
Sell 1 RAX Nov12 70 Call (credit to account)
Buy 1 RAX Nov12 75 Call (debit from account)
Max Potential Gain: $180 per spread if RAX expires between 60 & 70
Max Potential Loss: $320 if RAX expires below 55 or above 75
Break Even: 58.20 lower b/e, 71.80 upper b/e
Explanation: RAX has a tendency to move big on earnings, so we decided to define our risk. This Iron Condor puts us right at the expected move range, so there’s not much wiggle room here aside from a little on the downside. We’ll need the trend of tech stocks staying within their expected move range this season to hold.
Given the risk of $320 per spread, we are going extra small in size. Likely just selling one or two of these Iron Condors. We also like the Nov12 55/75 Short Strangle @ 0.75 credit, so we may sell one of these Iron Condors and one of the Strangles to get a little variety in the mix.
For anyone interested in a pure directional play, we favor the Nov12 65/70 Bear Call Spread @ 2.25 credit as we are moderately bearish going into this earnings report. RAX has had a significant run, but pressures from competition may result in a muted or slightly bearish response to this report. That’s just a theory though, nothing we would bet big on.
Here’s a chart of RAX noting the expected move range (black lines) and profit zone of this spread (purple lines & 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.
We are running a very special offer on our Earnings Trade Alert System. Offer expires Thursday October 18th @ 11:59pm PST. You might be wondering what you get as an Earnings subscriber, so here’s a look at the APOL earnings trade that subscribers received today via email at 3:05pm EST…
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Earnings Trade Candidate: APOL
Easy to Borrow (ETB): yes
Liquid Options: yes…decent OI & volume, bid/ask spread of 3-5 cents
Offers Weekly Options: N/A, regular Oct expires this Friday
Implied Volatility (IV) differential: approx 3.3x, 133% front month IV vs. approx 40% historical IV
Current Price: 27.50
Expected Earnings Move: +/- 2.75
Expected Move Range: 24.75 - 30.25
Trade Strategy:
Selling (to open) APOL Oct12 24/25/30/31 Iron Condor @ 0.40 Day Limit (credit)
Iron Condor Legs (per spread):
Buy 1 APOL Oct12 24 Put (debit from account)
Sell 1 APOL Oct12 25 Put (credit to account)
Sell 1 APOL Oct12 30 Call (credit to account)
Buy 1 APOL Oct12 31 Call (debit from account)
Max Potential Gain: $40 per spread if APOL expires between 25 & 30
Max Potential Loss: $60 per spread is APOL expires below 24 or above 31
Break Even: 24.60 lower b/e, 30.40 upper b/e
Explanation: APOL tends to be a mover after earnings, hence the massive volatility premium inflation in Oct12 options which expire Friday. We aim to take advantage of a post earnings volatility premium crush via this Iron Condor. The beauty of this spread is that it defines max loss risk to $60, which protects against a huge move, while also keeping break evens right outside the expected move range. This is the type of earnings trade opportunity we live for, but we still keep size small nonetheless.
If APOL opens tomorrow morning within the Iron Condor range, we will be able to cover the trade for a nice profit primarily due to earnings related volatility premium decay.
Here’s an image of the Iron Condor risk plot profile:
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.
Iron Condors are a great Options strategy, especially in a high volatility market environment. But are they the right strategy for an earnings based trade?
That depends on several factors. The most important is, of course, liquidity. An Iron Condor is a four-legged spread, and therefore has a tendency to have a wide spread between the mid price and natural (nat) price. This results in slippage on entry and exit, which is a big disadvantage to the retail investor. You can minimize this by choosing to only trade Iron Condors into earnings if the underlying has an extremely liquid options market and a tight bid/ask spread. This translates to a tight mid/nat spread.
Another important factor is how much higher front month implied volatility (IV) is compared to back month and historical volatility. The higher the front month IV is in comparison, the better. The key to trading Iron Condors into earnings is ensuring the break evens are at or outside the expected earnings move range. A front month IV that is 2x or greater than historical IV will likely result in the ability to achieve this.
Commissions play a big role when deciding whether an Iron Condor is the right earnings based strategy. Remember, you have to enter four legs per spread so be sure to consider round trip commission exposure per spread before entering. If you pay $1.50 per contract, that’s $6 in and $6 out totaling $12 round trip. Ensure your profit potential exceeds $12/spread by an amount reasonable enough to incur the risk of placing the trade.
“P.S. - Earn BIG with Earnings Alerts for only $99/year. This limited time Special Offer expires Thursday October 18th @ 11:59pm PST—NO EXCEPTIONS!!”
We sent an earnings strategy email out to Earnings Trade Alerts subscribers at 2:17pm EST today. So far the trade is in profitable territory, but there is still a lot of time before the opening bell.
We’ll share our exit details with you tomorrow. For now, here’s what Earnings Trade Alerts subscribers got via email earlier today…
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As noted on twitter this morning here and here, we took profits on our LNKD earnings trade shortly after the opening bell. LNKD came out of the gates running, and we did not want to take any risks. Turns out this was a good decision considering LNKD is now trading at 89.15 and the spread is trading at a loss.
As mentioned yesterday in this article, we sold to open the LNKD Feb2 weekly 65/70/85/90 Iron Condor @ 1.85 credit. This morning, we covered the 85/90 call spread @ 0.50 with the intention of letting the 65/70 put spread expire worthless in order to minimize transactional costs. The result was a gain of $135/spread, or +42.86% return on risk overnight! Excellent.
We tend to exit earnings trades shortly after the opening bell. After all, these trades are about the vol crush. If the stock is even remotely close to either end of the expected move range, there’s no reason to take any chances. On the other hand, if the stock is in the middle of the range with 7 or less days left and there’s still a decent amount of profit to be made, we’ll often let it ride (see OPEN earnings trade).
