FB earnings strangle

[qlai]

I put on this trade today wanted to run it by you guys. The reward is probably not worth the risk, but for some reason it intrigued me. In no way do I think this is a great trade.

Rationale: FB is under some political pressure and unlikely to break into new highs, yet after SNAP tanked 20% on earnings due to ad revenue issues, FB went down "only" 5%. It's right at 200 DMA with $300 as likely support even if temporary. I think it's unlikely for FB to have any surprise announcements during this earnings on 10/25.

So, below is a naked 17 delta strangle. I am prepared to take assignments either long or short. Any comments are welcomed.

 

[W-M-A]

I put on this trade today wanted to run it by you guys. The reward is probably not worth the risk, but for some reason it intrigued me. In no way do I think this is a great trade.

Rationale: FB is under some political pressure and unlikely to break into new highs, yet after SNAP tanked 20% on earnings due to ad revenue issues, FB went down "only" 5%. It's right at 200 DMA with $300 as likely support even if temporary. I think it's unlikely for FB to have any surprise announcements during this earnings on 10/25.

So, below is a naked 17 delta strangle. I am prepared to take assignments either long or short. Any comments are welcomed.

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Yours truly did a 50 contract calendar spread on SNAP even though the IV premium paid almost in full for the spread (35 cents each on the call and put side) the put side was breached by a magnitude my worse case scenario unhedged was a move of +/- 7.50%. However I had my algo configured on both sides to start selling in blocks of 500 shares from 70 below for every drop of 1 dollar. And buying blocks of 500 from 80 up. All in all got 3500 shorted at an average of 64 ish. Closed the entire put side at the close yesterday as I don't want to dedicate time towards managing this position next week. And will let the calls act as lottery scratch.

In regards to your position my question to you is, what is your remedy for a move beyond what you have anticipated?

 

[qlai]

In regards to your position my question to you is, what is your remedy for a move beyond what you have anticipated?

I will take the assignment either long or short and will start the “wheel”

Yours looks more interesting. Are you saying you had two calendars - one call spread and one put speed?

I had my algo configured on both sides to start selling in blocks of 500 shares from 70 below for every drop of 1 dollar.

Interesting. But the main damage is done by the gap, no? What’s the point of doing a spread if you going to be hedging with stock?

 

[traider]

Yours truly did a 50 contract calendar spread on SNAP even though the IV premium paid almost in full for the spread (35 cents each on the call and put side) the put side was breached by a magnitude my worse case scenario unhedged was a move of +/- 7.50%. However I had my algo configured on both sides to start selling in blocks of 500 shares from 70 below for every drop of 1 dollar. And buying blocks of 500 from 80 up. All in all got 3500 shorted at an average of 64 ish. Closed the entire put side at the close yesterday as I don't want to dedicate time towards managing this position next week. And will let the calls act as lottery scratch.

In regards to your position my question to you is, what is your remedy for a move beyond what you have anticipated?

Does your algo work well after market hours with huge bid ask spreads for post earnings?

 

[W-M-A]

I will take the assignment either long or short and will start the “wheel”

Yours looks more interesting. Are you saying you had two calendars - one call spread and one put speed?


Interesting. But the main damage is done by the gap, no? What’s the point of doing a spread if you going to be hedging with stock?

How are you taking delivery on the short calls? You mean its a covered position And you will part with your shares? Yes I had both sides calls and puts, my initial thesis was to profit from the IV reduction obviously with the stock staying within the range that I had calculated it would retain most of the value for the back week. Based on the curve itself I knew the options were priced to converge between the weeks if a blowout move was to occur, which it did . In that event you lose 90 - 100% of the premiums paid. But say the move would have been 5% or less then the back week would have still retained a lot of it's value and the 35 cent premium paid would have gone up to 1.80ish I was counting with a reduction of iv to around 60 from 98. I hedge directly in the after market so don't need to worry about the gap. The point with hedging I am not to let the market take my premiums mate! I enter the spread with the anticipation that the move will be within the range that I am OK to profit from without having to do any further management.

 

[W-M-A]

Does your algo work well after market hours with huge bid ask spreads for post earnings?

Can't say it's the ideal setup for it as the moves are violent, my main bottleneck is the broker (IB) gateway. But the logic is quite solid and modifies with a few percentage points every level it misses due to fast moving market, and after 3 such miss gets more aggressive.

 

[traider]

Can't say it's the ideal setup for it as the moves are violent, my main bottleneck is the broker (IB) gateway. But the logic is quite solid and modifies with a few percentage points every level it misses due to fast moving market, and after 3 such miss gets more aggressive.

Are you using order book data to place your orders strategically? Do you have to configure it for every different type of security say SNAP vs FB or is it generic enough?

 

[W-M-A]

Are you using order book data to place your orders strategically? Do you have to configure it for every different type of security say SNAP vs FB or is it generic enough?

Data is from third party low latency data IB data is used as a backup reference data for execution book keeping. the ago is generic in the sense that all you need is to enter the ticker for the instrument. I do have another application for the data analysis and generating analytics to feed into the algo for order generation and hedging purposes for mynlomg term positions. I am primarily option seller so my survival has a correllation factor of 1 with my hedging activity

 

[BlueWaterSailor]

I will take the assignment either long or short and will start the “wheel”

How do you 'start the "wheel"' if you're assigned a short position?

 

[qlai]

How do you 'start the "wheel"' if you're assigned a short position?

Sell puts to buy back shares.