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!
Below is the EBAY earnings trade we filled @ 0.28 credit at 3:23pm EST today. Members of our Earnings Trade Alerts System received these details before we entered the trade. Sign up today and join the earnings family!
Earnings Trade Candidate: EBAY
Easy to Borrow (ETB): yes
Liquid Options: decent OI & volume, bid/ask spread of approx 2 cents
Offers Weekly Options: n/a, Jan expiration is this Friday
IV differential: approx 2.4x, 84% front month IV vs. approx 35% historical IV
Current Price: 53.12
Expected Earnings Move: +/- 2.93
Expected Move Range: 50.19 - 56.05
Trade Strategy:
Selling (to open) EBAY Jan13 49 Puts @ 0.28 Day Limit (credit)
Naked Put Legs:
Sell 1 EBAY Jan13 49 Put (credit to account)
Max Potential Gain: $28 per contract if EBAY expires at or above 49.00
Max Potential Loss: $4872 per contract if EBAY goes to zero, but the more probable max loss is the $660 buying power effect per contract.
Break Even: 48.72
Explanation: We have been looking to get long EBAY for a while now. At this time, we would be comfortable owning the stock in the 50.00 area. Today’s after the bell earnings event has caused inflation in EBAY Options Implied Volatility, giving us an opportunity to sell Puts well out of the money and still get a respectable credit. We decided to take this opportunity to potentially start a long position in EBAY. Worst case, the stock tanks and we’re long from 48.72 cost basis which is a price we are comfortable with. Best case, EBAY expires above 49 and we keep the entire credit obtained for selling the 49 Puts.
In the event we are forced to go long, we have sold an amount of contracts that would get us 25% towards our intended capital pledge towards EBAY stock. We would immediately sell Calls against the shares, and continue acquiring shares based on the circumstances.
This is not a beginner strategy, so ignore this trade if you are not 100% comfortable being long 100 shares of EBAY from 48.72 cost basis per contract sold.
Here’s a risk plot profile of the Naked Put:
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.
APOL beat estimates, but a revenue miss and declining enrollments in their University of Phoenix locations eventually toppled the initially bullish response to their earnings report. The stock continued to fade lower premarket, and is now trading in the 19.00 - 19.20 area.
After watching price action for the first 45 minutes of trading, we decided it was time to take a loss into this round of buying we’re currently seeing. We just covered the APOL Jan3 19/20 Bull Put Spread @ 0.68, which translates to a loss of 0.34 given our fill of 0.34. In other words, we lost $34 per spread entered.
Given this was an earnings based trade, we kept position size small as always. This keeps us in the game and allows us to continue actively trading earnings events. The long term benefit of this style of trading is incredible as it sharpens your skills across the board.
Nothing on the books today. WFC is to only other possible earnings trade this week, but it’s doubtful the Implied Volatility will be attractive enough to risk capital. It is most likely that we’ll enter our second trade of the season next week. In the meantime, please do not hesitate to reply with an questions you have about trading earnings with Options.
Earnings Trade Alert System members received the following alert at 3:05pm EST today. Sign up now to start receiving our Earnings Trades before Earnings Season is over!
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Earnings Trade Candidate: APOL
Easy to Borrow (ETB): yes
Liquid Options: decent OI & volume, bid/ask spread of approx 7 cents on Jan2 20.50’s
Offers Weekly Options: yes, Jan2
IV differential: approx 2.6x, 130% front month IV vs. approx 50% historical IV
Current Price: 20.54
Expected Earnings Move: +/- 1.97
Expected Move Range: 18.57 - 22.51
Trade Strategy:
Selling (to open) APOL Put Spread @ 0.33 Day Limit (credit)
Bull Put Spread Legs (per spread):
Buy 1 APOL Jan2 19 Put (debit from account)
Sell 1 APOL Jan2 20 Put (credit to account)
Max Potential Gain: $33 per spread if APOL expires at or above 20.00
Max Potential Loss: $67 if APOL expires at or below 19.00
Break Even: 19.67
Explanation: APOL experienced a significant downside move after earnings last quarter. With that move on the books, a defined risk trade is a must so no Short Strangles or Naked Puts/Calls for us.
We like the fact APOL has created a bottoming pattern near the 18.50 area and has recently began up trending off that level of support. We want to base a strategy on this price trending. This Bull Put Spread allows us to play the bottoming pattern & uptrend with max gain at or above the psychological price point of 20.00 and a break even of 19.67, which gives us a little cushion for error.
If you’re in the mood for a little more risk and are comfortable with naked Options (unlike us), the Jan2 18/23 Short Strangle @ 0.50 Limit (credit) is worth a look. You get approx 1.5x outside the expected move range and a credit of 2% the price of the stock. This meets our earnings based Short Strangle standards, but we’re avoiding it due to last quarters violent move as noted above.
Here’s a 1-year chart and 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. Furthermore, we ALWAYS keep position size small when playing earnings based trades.
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.
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.
Here’s the trade we sent to Earnings Trade Alerts members at 3:20pm EST today. The trade filled @ 0.85. Hopefully strategy prevails and we have another winner. The heart always pounds extra hard when selling Strangles into tech earnings!
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Another tough call today. With liquid names like SBUX & LVS and not so liquid names like LNKD & PCLN, there are quite a few options. We initially decided to stick with the super liquid LVS, but ultimately couldn’t resist the lure of trading LNKD into earnings.
Earnings Trade Candidate: LNKD
Easy to Borrow (ETB): yes
Liquid Options: plenty of OI & volume, did/ask spread of 10-20 cents
Offers Weekly Options: yes, Nov1 (expire tomorrow)
IV differential: approx 3.2x, 175% front month IV vs. approx 55% historical IV
Current Price: 106.40
Expected Earnings Move: +/- 9.25
Expected Move Range: 97.15 - 115.65
Trade Strategy:
Selling (to open) LNKD Nov1 90/125 Strangle @ 0.80 Day Limit (credit)
Short Strangle Legs (per spread):
Sell 1 LNKD Nov1 90 Put (credit to account)
Sell 1 LNKD Nov1 125 Call (credit to account)
Max Potential Gain: $80 per spread if LNKD expires between 90 & 125
Max Potential Loss: theoretically unlimited, but max probable loss is $900
Break Even: 89.20 lower b/e, 125.80 upper b/e
Explanation: A Short Strangle into earnings on a stock like LNKD 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 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 1.9x outside the expected move range, which we may need every bit of in a stock like LNKD. Anything can happen here.
A solid defined risk alternative to this trade is the LNKD Nov1 90/95/115/120 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 LNKD moves outside the expected move range.
Here’s a chart of LNKD 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.
The top two earnings trade candidates today are FSLR & V. Only one has a solid IV differential…FSLR. There is a problem with FSLR, which is the fact it is hard to borrow (HTB). This results in liquidity issues, and we are not comfortable trading FSLR into earnings as a results.
V is easy to borrow (ETB), but does not have enough IV differential to attract us.
If we absolutely had to place an earnings trade today, we would go with FSLR. IV is 175% on the Nov1 weekly options vs 80% hist IV, making it just over 2x IV differential. The expected move is approx 2.65, giving it an expected move range of 21.40 - 26.70.
The undefined risk strategy we would consider would be selling to open FSLR Nov1 20/27.50 Strangle @ 0.58 credit, which would put us approx 1.6x outside the expected move with a credit that is just over 2% the price of the stock. You can move up to the 28 Call to give a little extra upside cushion and still get a reasonable credit of 0.50.
The defined risk strategy we would consider would be selling to open FSLR Nov1 23/24 Put Spread @ 0.44 credit. FSLR has been trending higher into this earnings event, and recently managed to break short term down trend resistance as well as 200 day moving average resistance. This bullish price action into the earnings event would give us reason to position bullish into the earnings report with this low capital risk strategy.
Hopefully tomorrow will bring a name that meets our strict criteria, but for today we are staying disciplined and sitting the sidelines.
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.
Let’s start by reminding everyone that today is the Last Chance to get in our our Earnings Trade Alerts for the Special Offer pricing of $99/year. Offer expires tonight @ 11:59pm PST, no exceptions.
Now, back to the topic at hand…
We started the day with a top three earnings trade candidates list including GOOG, SNDK, and RVBD. GOOG reported prematurely by mistake (for some reason “premature” and “mistake” seem to go hand in hand), so our list was narrowed down to two candidates.
With Oct expiration taking place tomorrow, the obvious choice for earnings plays is Oct options. Reason being, when trading earnings we want as little duration as possible since it’s an overnight trade.
Let’s break down why SNDK & RVBD are top candidates…
SNDK has 50 cent strike increments which gives Trader’s added strategic flexibility. Volume & Open Interest on the options is good enough to get a reasonalby quick fill. The 7-10 cent bid ask spread could be tighter, but it’s doable. Implied Volatility (IV) on Oct options is 139%, which is 2.75x higher than the historical IV of approx 50% (2.75x IV differential). That allows Trader’s to sell premium and get plenty of cushion by doing so.
RVBD options trade in 1.00 stock increments and also have enough OI & volume to get the job done. Bid ask spread is 5-10 cents, so pretty even playing field with SNDK there. The big difference is the 5x IV differential in RVBD. The Oct options are showing 275% IV vs approx 55% historical IV. That’s HUGE!
Both stocks have a tendency to move big on earnings, so a defined risk strategy is a must in our opinion. We chose RVBD as today’s earnings trade, but it wouldn’t be fair to Earnings Alerts members for us to share the trade here. Just wanted to give some insight into the thought process.
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.
