AAPL & NFLX 1.23.13 after the bell

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 1.22.13 Earnings Trade Exit Details

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!

What’s Your Exit?

It’s something that rarely gets covered in the mainstream trading sites, but exiting a trade is just as important, if not more important, than entering a trade. It’s really easy to say “hey, I think Apple’s going up!” and get into a long position, but it’s much harder to figure out when to take gains, or worse, when to take losses. 

In general, you should have an exit mapped out in your head when you enter the trade. This should be a target on the winning side, and a mental stop, or even an actual stop order, on the losing side. These can be somewhat flexible numbers, but the exit strategy should never be “I’ll exit when I’ve made enough money”… ‘cause head’s up, that doesn’t work. If you’re up a ton you’ll feel like you can just keep riding it, and often this turns a big winner into a breakeven trade, or worse. 

On the flip side, we have a tendency to hold losing trades for too long, letting the losses grow as we wait for some divine intervention to save our shirts. It’s OK to take a loss! The best traders take losses just as often as beginning traders… they just tend to take much smaller ones, because they pick their exit points ahead of time. 

So go ahead, think about this as you’re entering your trades this week. Know how you want to get out before you get in, and the odds are you’ll be a lot happier when the trade is over. Good luck! 

Weekly vs. Monthly

Earnings season means our blog followers get nice written forays into the world of “trading theory”. It’s not really a science, because it doesn’t have dinosaurs or tiny black holes, but it’s the closest we get to deep, theoretical thought during the month (it’s no surprise that a bunch of business majors aren’t exactly Einstein and Bohr). 

With that said, we ask this question: Is it better to trade weekly options during earnings season, or monthly options? 

The answer isn’t easy, but we’ll explore the choices. When trading weekly options, there’s a serious advantage to debit strategies, because those options cost much less than their monthly counterparts. This is great! But, there’s a tradeoff - if you’re wrong on the direction or magnitude of the earnings move, there’s no time to recover the trade, you’re taking max loss. 

There may also be an advantage to selling weekly options, in that the payoff comes very quickly if you’re right about direction and magnitude. But again - if you’re wrong, there’s no repair strategy that can save you. 

So the tradeoff is this - do you want your payoff quickly, and if so, is it worth the additional risk that comes with not having a backup plan if you’re wrong? We tend to go with monthly options, because we like the flexibility of adjusting to a situation gone wrong. In our mind, the difference between good traders and poor ones is the ability to make good decisions, and respond to bad results, and we prefer strategies that provide us with at least the opportunity to rebound. 

Whatever your choice, you’re a better trader for weighing the options and making a decision based on risk analysis and reward potential. Now get out there and trade, and good luck!

APOL, What A Tease!

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.

1.8.13 APOL after the bell

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.

Good News, It’s Earnings Season!

Our Earnings Alert System has been quiet, but it’s about to be “game on” yet again.  AA kicks off earnings season tomorrow after the bell.

Typically earnings season starts a bit slow.  AA kicks the season off, then it’s quiet for the remainder of the week.  Next week is when things start to get exciting. The increased trade activity tends to last 4-6 weeks, then earnings season ends and earnings trade frequency fades with it.

We don’t always trade AA earnings, but we always look for an opportunity. If AA meets our strict earnings trade criteria and we like a particular options strategy, we will definitely share it tomorrow.  If not, expect the fun to begin very soon.

Here’s to another successful round of earnings trades!

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.

Top Two Earnings Trade Candidates 10.18.12 

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.

APOL Earnings Trade Example

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.

Repair Techniques

It’s not often that a trade goes exactly the way you planned from start to finish. So what happens when you’ve got to make adjustments on the fly? Repair strategies become paramount. We get plenty of questions about what to do with a trade once support or resistance has been broken, or once the basic assumption is proven incorrect. 

The first thing you’ve got to understand is that a “repair” trade is really just another trade - a totally different entity that you’ve got to manage just like any other trade. The idea of a repair is that you’re adjusting an existing, losing, position, but in reality you’re moving from one trade to another, with all the new risks, rewards, and assumptions that go with it. 

With this in mind, ask yourself a few questions before deciding to “adjust” an existing trade: 

1) Is this trade so near max loss, or so near expiration, that it’s going to be very expensive to do anything with it? 

2) Do I want to keep adding to a position that I’m already down on? 

3) Are there better places to put my time, money, and attention? 

If the answers aren’t perfectly clear, take some time to think about this before adjusting a position. Being a good trader is about taking your losses with the same rigor and analysis that you use when you take your gains, and doing your best to remove emotion from the equation. If a trade’s got you bummed, and you’re having trouble focusing on the rest of your account, it’s probably better to close the position (or at least enough to make it substantially smaller) so you can return your focus to the trades still in play. 

Whatever your trade, make sure you understand the new risks and potential rewards you’re taking when you start making changes. Some of the biggest losses we’ve seen customers take have been from making changes to existing positions that drastically changed risk/reward scenarios. As with all your new trades, be aware of what you’re doing before you do it!