In this 7 part video series, tickertank.com founder Nick Fenton explains his criteria for selling Naked Puts (short puts). Part 7 reviews Nick’s stock hacker scan settings using the thinkorswim desktop software. These scan settings allow Nick to find Naked Put candidate leads with ease.
Keep in mind this criteria is specific to Nick, and is the result of several years of trading this strategy. Nick’s criteria may not be right for you, but worst case you get a look over the shoulder of an expert.
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!
AMZN Earnings Trade 10.25.12
Below is the email that went out to TickerTank Earnings Trade Alerts members before the close today. Let’s hope we have a winner on our hands. We always get nervous when selling Strangles into earnings on high priced stocks like AMZN, but feel blessed to have the capital to do so.
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It’s a tough call between AAPL & AMZN today.
We lean bullish on AAPL, but given the market tone in the stock lately it’s a tough call…could crash below 600. PLus the bid/ask spread is 30-40 cents and the IV differential is only 2.2x.
We have yet to lose on an AMZN earnings trade, but since we just said that it’s all but bound to happen. :) The bid ask spread is tighter here at 10-15 cents, and the IV differential is 3x making it the more attractive choice.
We were tempted to trade both, but we’re going to stick with just AMZN. As always, we intend to keep size small since this is an earnings trade.
Earnings Trade Candidate: AMZN
Easy to Borrow (ETB): yes
Liquid Options: plenty of OI & volume, did/ask spread of 10-15 cents
Offers Weekly Options: yes, Oct4 (expire tomorrow)
IV differential: approx 3.5x, 157% front month IV vs. approx 45% historical IV
Current Price: 228.70
Expected Earnings Move: +/- 19.50
Expected Move Range: 209.20 - 248.20
Trade Strategy:
Selling (to open) AMZN Oct4 200/260 Strangle @ 2.35 Day Limit (credit)
Short Strangle Legs (per spread):
Sell 1 AMZN Oct4 200 Put (credit to account)
Sell 1 AMZN Oct4 260 Call (credit to account)
Max Potential Gain: $235 per spread if AMZN expires between 200 & 260
Max Potential Loss: theoretically unlimited, but max probable loss is $2,000
Break Even: 197.65 lower b/e, 262.35 upper b/e
Explanation: A Short Strangle into earnings on a stock like AMZN is not for beginners. This trade requires that one have plenty of capital in your account, and that one is willing to stomach a potentially large loss. We like it because the upper break even resides at recent highs resistance and there is resistance turned support at the lower break even which may hold the stock in the event the report is poor.
The break even to break even range of this Short Strangle puts us approx 1.7x outside the expected move range and provides a credit of approx 1% the price of AMZN. We usually look for a credit of 2%, but with AMZN being such a high priced stock we are okay with the 2.35 credit.
A solid defined risk alternative to this trade is the AMZN Oct4 205/210/250/255 Iron Condor @ 1.80 Day Limit (credit). This puts the break evens just outside 1x the expected move range, but still requires one to be willing to stomach a max potential loss of $320 per spread if AMZN moves outside the expected move range.
Here’s a chart of AMZN 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.
STX Earnings Trade
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…
Members took profits on a JNPR Covered Calls position yesterday. The end result was +6.18%…another winner in our long streak of winning. The reason for entry is detailed in this video. Check it out and feel free to ask questions.
