It is earning season and everyone is tempted to trade companies with options.
but what is the best strategy? Selling premium? Buying premiums? How to pick the right stock?
Time for a quick thread on how I trade in earning seasons using options ๐งต๐งต๐งต
but what is the best strategy? Selling premium? Buying premiums? How to pick the right stock?
Time for a quick thread on how I trade in earning seasons using options ๐งต๐งต๐งต
2/ First thing you need to know is Implied Volatility and expected move.
Expected move tells you what the option market is pricing where the stock is going to go. Easiest way to do it is to look at at the money options for front month expiry. (not an accurate way, but its OK)
Expected move tells you what the option market is pricing where the stock is going to go. Easiest way to do it is to look at at the money options for front month expiry. (not an accurate way, but its OK)
3/ As an example, for $NFLX earnings next week, the market is pricing in a $33.80 move. That is a 10% move.
Is 10% too much? Is it too little? Should you go long vol, should you short it?
How can you tell?
Is 10% too much? Is it too little? Should you go long vol, should you short it?
How can you tell?
4/ You can look at historical earnings and moves and decide if the market is under pricing the vol, or where vol is sitting in terms of percentiles.
In the last 4 earnings Netflix has breached its expected move three times, which means straddle would have made money.
In the last 4 earnings Netflix has breached its expected move three times, which means straddle would have made money.
5/ Key thing to consider here is this:
80% of straddles in earnings lose money. So be selective, only go long volatility on stocks that have breached expected move before and take smaller size.
Peak highly anticipated earnings only.
80% of straddles in earnings lose money. So be selective, only go long volatility on stocks that have breached expected move before and take smaller size.
Peak highly anticipated earnings only.
6/ You can also wait and run spreads after the earnings.
After the earnings, stocks often put short term bottom or short term tops, which is ideal for spread selling or naked 0DTE options.
After the earnings, stocks often put short term bottom or short term tops, which is ideal for spread selling or naked 0DTE options.
7/ Few great examples from today where the banks, both $JPM and $BAC both gave you great chance to sell premiums once the bottom was in.
This was the trade I took myself.
This was the trade I took myself.
8/ Hope you enjoyed this. Make sure to like and leave comments.
Any follows will be appreciated!
Any follows will be appreciated!
Loading suggestions...