NTAP Earnings Trade 11.14.12

TickerTank Earnings Trade Alerts Members received this trade alert at 2:07pm EST.  We are sharing this just before the close to give you an idea of what you receive as a member to this product that members have literally called “AMAZING!”.

We filled the trade below @ 0.37 credit.

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Below is what we intend to do with NTAP into today’s earnings.

We also may work a few NTAP Nov12 24/31 Short Strangles @ 0.45 Limit (credit) as an expected move play, but have yet to decide if we feel it’s worth the risk.  If you are looking for an expected move range play, that’s what we favor.

Earnings Trade Candidate: NTAP    

Easy to Borrow (ETB): yes

Liquid Options: plenty of OI & volume, bid/ask spread of approx 15 cents

Offers Weekly Options: N/A, Nov12 options expire this Friday

IV differential: approx 3.3x, 135% front month IV vs. approx 40% historical IV

Current Price: 27.35 

Expected Earnings Move: +/- 2.50 

Expected Move Range: 24.85 - 29.85 

Trade Strategy:

Selling (to open) NTAP Nov12 25.50/26.50 Put Spread @ 0.33 Day Limit (credit)

Bull Put Spread Legs (per spread):

Buy 1 NTAP Nov12 25.50 Put (debit from account)

Sell 1 NTAP Nov12 26.50 Put (credit to account)

Max Potential Gain: $33 per spread if NTAP expires above 26.50 

Max Potential Loss: $67 if NTAP expires below 25.50 

Break Even: 26.17 

Explanation: NTAP has been pounded hard since it began fading off September 21st high of 36.31. The stock found short term support in the 28 area, but recently dipped below and has shown buy side interest in the 26.00-26.50 area. We think NTAP is oversold at these levels, and are positioning our earnings play based off that assumption via a moderately bullish Bull Put Spread.

With a break even of 26.17 (assuming 0.33 fill), we are giving ourselves a little room to be wrong.  This allows us to play our directional assumption a margin of error, which we are comfortable risking capital on.  Either way, this is not a make or break trade since, as you know, we keep size very small when trading earnings.  

Here’s a risk plot profile of the Bull Put Spread:

 
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.