AAPL - Earnings May 1

Kim Klaiman said:
I agree. But if it was a negative surprise (or market would see it as negative surprise), it would go down and technicals would not really matter.

The bottom line is that I prefer more stable and predictable strategies, where I can get stable and consistent gains of 10-30% but also limit my losses to 20-30%, while you prefer to aim for higher gains and willing to accept higher losses.

Perfectly fine - but my question still remains: if we both are willing to risk the same amount of money, then your sizing is about 4-5 times smaller than mine. Which means you need your average P/L per trade to be 4-5 times higher. Agree?
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Ya technically you’re right If I risk 100% on a 2% position size yes I’m looking for a 200% plus gain. But realistically a 4-5% percent move in the underlying can create that.

And ya I don’t disagree if Apple disappoints technicals are out the window short term. If it’s not enough to reverse the trend the trend will gradually meander the way it was going originally after taking a catalyst hit, So what I’m saying is when you have a technical set up and a catalyst event going the same way you have extra momentum, if the catalayst event isn’t a surprise either way and does nothing you’ve taken a position in the path of PA. Also wasn’t looking for a price target beyond a resistance area were selling pressure could be ahead, things I consider.
 
FXbeachbum said:
Ya technically you’re right If I risk 100% on a 2% position size yes I’m looking for a 200% plus gain. But realistically a 4-5% percent move in the underlying can create that.
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Yes it can. But if you are looking at stock like AAPL that moved 50/50 in the last 10 cycles, then you are guaranteed to lose 95%+ when you are wrong, but when you are right, you need the stock to move beyond your short strike and stay there till expiration in order to realize 200% gain. And even in this (perfect) scenario, you are looking at 50% average P/L per trade, which translates to 1% portfolio gain with 2% allocation. With 10% allocation, all you need is 10% average P/L per trade to produce the same 1% portfolio gain.
 
100% gain on 2% is 2%

200% gain on 2% is 4%

300% gain on 2% is 6%

100% loss on 2% is -2%

So therfore in this scenario of APPL last earnings I paid 1.30 and closed at 4.10 over a 200% gain, without waiting til expiration. Therefore if I’m getting 2/1 it would take 2 losers to wipe out one winner. And your saying I’m playing a 50/50 game doesn’t sound too horrid does it? Plus I don’t have to always wait til expiration to get 2/1, yes for max profit I would. Plus last earnings you tried to use as an example of a losing trade so let’s say I paid approximately the same price for the spread really it was closer to 1.50 and say I lost it all I lose 1.50 But the funny thing is I trade monthly’s not weekly and ya you’re right situation was pretty dire I chalked up the max loss until the end of expiration after last earnings and still turned into a 1/1 trade by expiration. Why would I ever close at a 95% loss I’d hold it what’s the point of selling at .05? Markets can literally do anything anytime including stuff that doesn’t make sense. Sure last time was luck but that’s the beauty of position sizing for max loss. Your option is your SL you can allow a position to go way against you and you’re not losing anymore money. I wouldn’t want to allocate 10% of my capital to a single options trade unless it’s intraday, and I’m not really intraday.


So you say options are expensive before a news event, and the expected move which is usually anticipated to be approximately the price of a straddle/strangle. So what I’ve done is eliminate one side of the straddle and go long with a bias. This reduces me to a 50/50 game but it takes me out of the losing proposition of the straddle/strangle. Now that I’m 50/50 I don’t want to pay 50% of the strangle/straddle price either because in the longterm paying 50% of a straddle price on 50/50 doesn’t seem like a profitable LT strategy unless you can be over 50/50. So to further reduce the cost and mitigate the volatility crush and the other issues I sell an OTM. But is it really a 50/50 game when you take other statistics into account? Number of companies bearing? Companies history of beating?

I set this vertical up so that parameters of the OTM fall at a strike close to the anticipated top/bottom range of the expected price move. So I’m just setting a vertical based on the expected price move and not getting greedy going for more. Then I’m setting up this vertical to were I’m paying less than a 1/3 of the spread so my max profit is always greater than 2/1 and closer to 3/1. So in essence I paid 1.30 for an anticipated price move of 7.00 even though I set up to capture 5.00 of it. So if I paid 7.00 for this move break even to losing proposition in the long term. If I paid 3.50 to have 50/50 odds on this price move longterm same difference. But I paid 1.30 to capture 5.00 of the 7.00 anticipated price move and have a 50%ish chance. Plus the way I set it up that risk reward of 2/1 is still more than there. So you see I pay about 1/4 to 1/3 price for a 50% chance.

So basically I’m playing a coin flip game risking $1 to play lose it if I’m wrong get $2 if I’m right.
 
Well, if you trade monthly, then there are few other factors to consider:

First, monthly would be slightly more expensive. For example, last cycle with AAPL around 168, you could get the weekly 170/175 for 1.70, but monthly (same strikes) for 1.85. So it is not 2:1 R/R anymore, but 1.7:1. And when AAPL went down, the monthly was still down 80%+. Not 95%+ but still very significant.

And for monthly to have R/R of 2:1 you also have to go with slightly higher strikes, AND you have to wait full 2 weeks to realize the full 200% gain. This assuming that AAPL trades above your short strike which is not always the case. For example, in November 2017 cycle, with AAPL at 168, the monthly 170/175 spread would be up only 40% the next day. And if continued to hold till expiration, the stock actually retreated back to 170 and the trade would lose almost 100%.

So your 200% gain is really the best case scenario and rarely happens even when you are right on direction. Which means that you probably lose 80-90% on losers and gain maybe 150% on winners on average if you are lucky and hold close to expiration. Which gives you R/R of probably 1.7:1.

But going back to my position sizing calculation: even if you were right and it is 2:1 R/R on 50/50 bet, that means average return of 50% per trade (200% gain on winner and 100% loss on loser). With my position sizing x5 yours, I can make only 10% return per trade and still get same overall portfolio return.
 
FXbeachbum said:
Dude I just did these trades they’re not hypotheticals.
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Yes, you were lucky this time. But this was pretty much the best case scenario. AAPL stock had its best weekly gain in 6 years.

Did you do this trade last cycle? Or in November 2017? Would you mind sharing the results?

To me, playing earnings is still gambling, no matter how you put it. And you still continue ignoring the impact of small position sizing on the overall portfolio gain even when you win big.
 
All front month contracts This month was 170 to 175 bull call. Positioned a few days prior to earnings bought for 1.30 looking to get as close to 2x as possible want 3.90 actually morning of set a limit sell at 4.20 fed later that day created a volatility spike and I decided that 4.10 was good enough and took profits. Didn’t know anything about Buffet but I was already above 2X so not going to sweat it.

Feb was a 170 to 175. Apple was mixed less units sold than anticipated but average price of units was up. After market APPL was up but overall market sentiment was pretty bearish in Feb, this was around the major VIX spike(why I’m never a seller) Lots of fear so AAPL tanked along with the market. Spread lost majority of its value, since I position for max loss I really just let it run. It came back and closed a few hundred ITM. This was why I never close I had figured max loss in this trade until the last few sessions it bounced back. The cost of the trade was 1.50 but ended up selling for low 2.00s Should’ve been a losing trade, but since I use the option as a stop loss I hardly ever sell almost always let spreads run in that case.

I know I traded multiple AAPL earnings in 17. I’ll have to wait til I’m on a PC to pull up a trade history for prices that far back. I know I made a mistake I think it was in August and sold my bull call on the day after earnings after it gapped up and started watching it running down and sold only to see it follow through bullish in the following sessions, it’s why I’ve picked a target and let it breathe now. I don’t like watching tick by tick makes me feel I should do something. But AAPL has a history of positive surprises and even though it retraces some gap the day of, tends to follow through in sessions after. I really didn’t get none of the Buffett move I already sold so that luck didn’t play into my profits.

As far as profits I understand what you're saying you only need a 10% move but you position big and if I’m in multiple positions Idk if I like the idea of having 50% of my capital in play. Right now I’m short EUR/USD long puts, Short Aud/USD long puts, short Vol long puts. Then add all those positions on with AAPL and a CAD position that was
Recently exited. So technically position sizing 10% would have 50% of my capital in play at once not really in my risk profile to have that much capital at work in options
 
Just checked Feb - it recovered in the last two sessions before expiration. This was really close call - went from 90%+ loss to 30-40% win. But you cannot really count on it, and if you wait till the last couple days with the winners, you can lose your gains as well at the last moment.

I routinely have 5-7 positions with 10% allocation each. I can do it because my risk on each position is usually limited to 20-30%, and positions are not correlated - I might have 2-4 straddles, 1-2 calendars, 1-2 iron condors etc. So it is extremely unlikely that all of them will lose 20-30%. In fact, it is very likely that they will balance each other. This is the beauty to have trades with low risk.

But if those earnings trades work for you, good for you. Directional trading combined with earnings bets is probably one of the most difficult strategies, and if you succeeded to master them, I salute you.
 
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