Another busy couple of days with work, however pretty massive changes to the way that I’m looking at earnings and how I’m playing my positions. A guide will be put together to expound upon the three legs of the earnings strategy loosely summarized as:
- The DD to discover sentiment moving into earnings
- The earnings call itself
- The post-earnings movement and sentiment
Conqueror did a phenomenal job outlining these three legs and where the money is to be made after RH failed upwards (Analyzing our earnings plays), and I’m going to start to look at earnings differently. Namely:
- Good DD is still the foundation of significant profits. The most money to be made on earnings happens when the directional seed is planted weeks before the earnings call and you ride the whole train into the earnings date. On the date of earnings cut your positions. This is leg one of earnings.
- The call itself can be wild and can make people a good amount of money. BUT less than 10% of earnings result in wild double digit underlying price swings that are capitalized on. If you hold on hope to the 10%, you’ll get burned 90% of the time and only break even if you’re lucky (will expound upon this).
- The final leg is simply playing the volatility of the underlying after earnings. The IV crush has occurred by market open, and that’s where you can play the trend and make out big.
So let’s talk about what I did this week! But first and foremost, my IBM lotto absolutely expired worthless, so I lost $9. I started Thursday morning with a balance of $523.74 as noted above.
TSLA
TSLA had okay earnings but not enough to save the stock from dropping. Seeing that there was a trend in the morning to continue down, I wanted to position myself until 10AM EST and purchased (2) $680 lotto put. At this time the underlying was moving up, so the premium on these puts was dropping, and I filled them for $0.20 each. While there were scary points throughout the day in which it didn’t look like TSLA decline was going to make this profitable, I actually managed to sell these puts for a total of $0.30, turning a cool profit of $20. My balance as of yesterday was $543.74, [color=#33b864]or an increase of 8.7% on the week.[/color]
I cut the position and didn’t position myself for any earnings calls, which turned out to be a good thing because I was wrong on 2.5/3 of them:
Very effin’ wrong
Pretty wrong but I didn’t feel confident that I would be right
This one actually fell into that “Too bearish” territory that should have been a red flag
Pretty right, but considering how it opened I would also say that this was at least half of a failure
So not positioned at all for the coming day, I decided to play it the same way I played TSLA which leads to today…
AAPL
Apple had crazy earnings and I had an idea that a similar strategy may work with them, considering they shot to $166.87 overnight on earnings and had no reason to believe that they would reverse. I waited until roughly 9:45AM and bought (5) 167.50C for 0.31, totaling $155.00. While I would have made a killing had I held that to the end of the day, I watched the first run up of this option hit 0.95, and I ended up selling for 0.93, or 200%. This yielded a total return of $310.
Heading into the weekend my portfolio size is now $833.74, [color=#33b864]a change of 66.7% on the week.[/color]
This was a very good week and has informed how I may approach earnings a little differently heading into next week. I was very busy this week so I wasn’t very active in trading, however that may have been a benefit. All in all, my week in a chart looked like:
| Ticker | Position Type | P&L |
|---|---|---|
| IBM | Shares | $25.74 |
| IBM | Option | -$9.00 |
| SPY | Option | $7.00 |
| TSLA | Option | $20.00 |
| AAPL | Option | $310.00 |
| — | — | — |
| TOTAL | [color=#33b864]$353.74[/color] |
I’ll go through and identify some earnings again this weekend that I will be playing, however I will be changing my strategy to mirror what I did with TSLA and AAPL. Have a great weekend everyone!