Hey guys!
TSLA earnings are coming up. TSLA FD’s are great fun to play and also big sadness to play if you don’t play it the right way. I’ve made a good chunk of change off of TSLA earnings in the past and I wanted to take a moment to share my wisdoms (for whatever they’re worth) and also solicit feedback from each of you.
Bit of a precursor, there are a few things you should know so that when I reference them you know what I’m talking about:
- Conq graciously turned on Trade Ideas for TSLA earnings so we all see alerts now
- Vega is a measurement of how much an options premium changes as IV increases
- Delta is a measurement of how much an options premium changes as the underlying price changes (many of you know this already)
Earnings Phases
There are two almost surefire ways to play earnings for high visibility tickers like TSLA:
- Pre-earnings Vega + Delta rides
- Post-earnings Delta rides
I want to discuss both of these, plus how to play them appropriately so people don’t get burned.
Pre-Earnings
The day prior to earnings when you have less exposure to Theta, Implied Volatility will build and carry an options premium higher as more people buy into that option. While an oversimplification, for sure, I look at IV as being a measure of supply and demand. The higher the IV, the more representative of a high demand and limited supply. That means that people will associate a higher intrinsic value to the options, which of course means that you will pay more as well.
The key to playing the Vega pump of a pre-earnings play is to:
- Identify the trend early. The trade ideas will help with this using the !signal command (please use Bot Spam Channel)
- Only play the day before the earnings are released. Theta on the week of earnings is a bastard and will wreck you
- Secure your profits before the market flattens, and DEFINITELY before the close of the trading day
If you follow this and play the trend (not what you think it’s going to do), you will benefit from more people pouring into that strike/expiry increasing the IV, vega, and premium, and also the natural benefits of Delta in the event that the IV play doesn’t work out for you.
Post Earnings
This is a simple delta play. Play into the trend. Don’t position on what you think it might do, just do what it is doing. Wait for the trade ideas to publish a change in sentiment and position yourself into the trend. A good rule of thumb that I follow:
- Find your afterhours/premarket high or low.
- Position yourself at that dollar amount in the call/strike position. If earnings are bullish and it peaks at $800 afterhours or in the premarket and then sells off at open, at the bottom take an 800C.
- There’s a good chance it will get back there, but always sell when you see profits you like, and keep your eyes peeled for trade idea exit points
That’s the start of this conversation. Please feel free to contribute as you see fit!