My option trades

[ryanpatrick]

Thanks Jeff,

I see your point now. It'd be hard to see that kind of gain on say FOSL or WTW where IV expects a 10-15% move already....but something like CLX probably had an IV that expected 2-3% move at best. The huge surprise caught "the experts" off guard, and in that I'm talking about those market makers. I think it might actually happen more often than not too.....I wonder if you get better odds with a high beta mover like NFLX where IV prices a 10-15% move, or a low beta stock like CSCO, INTC, or MSFT where IV prices a 2-3% move post earnings. The point being just because IV only prices a 3% move and a stock like INTC only moves 3% most of the time post earnings doesn't mean that it may send out a one time surprise and gap by 8-9% there by making straddles profitable. I'll have to look into that once I'm done with my target here. Again, that's a very interesting play.

 

[falconview]

Atticus talks way over my amateur head. But I sure would like to read his book when he writes it.

 

[jeffalvinson]

Quote from ryanpatrick:

Thanks Jeff,

I see your point now. It'd be hard to see that kind of gain on say FOSL or WTW where IV expects a 10-15% move already....but something like CLX probably had an IV that expected 2-3% move at best. The huge surprise caught "the experts" off guard, and in that I'm talking about those market makers. I think it might actually happen more often than not too.....I wonder if you get better odds with a high beta mover like NFLX where IV prices a 10-15% move, or a low beta stock like CSCO, INTC, or MSFT where IV prices a 2-3% move post earnings. The point being just because IV only prices a 3% move and a stock like INTC only moves 3% most of the time post earnings doesn't mean that it may send out a one time surprise and gap by 8-9% there by making straddles profitable. I'll have to look into that once I'm done with my target here. Again, that's a very interesting play.

Ryan,

You make a real good point and actually that point your making is the million dollar question for straddle/strangle traders.
Another thing you could do with the higher IV trades you like is
simply buy cheap Out of the Money puts as a hedge when your Primary trade direction is wrong. That's really all we did on Clorox
in 1999. But it can also be called a strangle.
Sometimes on strictly earnings plays we would do shorter term call biased strangles with uneven expiration times. Like this:
stock 110
second month At the Money Calls at 2.00
front month Out of the Money Puts at 1.00 or less.

The puts were simply a hedge against our bullish bias on the stock. Often times, the front month OTM puts would save what otherwise would have been a horrendous loss on the calls.


Jeff

 

[atticus]

If the stock drops and you're long the bull straddle you get killed. My guess is that WTW will not trade outside the straddle range, but even if it does, Ryan won't have the ability to gamma-trade with shares and will have to accept the opening print.

Buy the 75/85/85 call fly if you're bullish. Excellent coverage to 85 and it's trading $3.25 to the buy.

I am not bullish WTW, but that is the play if you are.

 

[ryanpatrick]

Quote from atticus:

If the stock drops and you're long the bull straddle you get killed. My guess is that WTW will not trade outside the straddle range, but even if it does, Ryan won't have the ability to gamma-trade with shares.

Buy the 75/85/85 call fly if you're bullish. Excellent coverage to 85 and it's trading $3.25 to the buy.

I am not bullish WTW, but that is the play if you are.

At first look I wasn't too bullish too with resistance on chart at $77.50-$80 usually trumping all else. But it got interest when I went to get a look at WTW's short interest. I saw 14M shares short or a whopping 20% of float. This one could go the way of GMCR and NFLX where a slight beat or even inline report gives a big short cover rally afterwards and WTW breaks above $85. To the downside, I don't see WTW going below $70. With 3 weeks here at $75-$80 range, all the sellers have already sold....The only thing that can push WTW from $78 to $70 is if the earnings just missed......with 20% short float, any large investor who wanted to short is also already in play. The only investors not playing this one right now are the bull investors.

I got it.....I'm going to do a 1 strangle here taking the 82.5 call and 77.5 puts......I'm looking for $70 at most to downside, but I think upside is the wild card. Like I said before, WTW's +47%, -10%, -23%, and -11% swings should give a strong confidence that the stock goes in one or the other direction. Now, I'm not necessarily looking for profits here (FOSL and RAX gave me over $2000 in net profits today still holding FOSL but will sell before close today). Instead, I'm looking to test the strangle play here, and I'll mark WTW as a high beta stock with moves at +/-10% post earnings.

 

[ryanpatrick]

I'm not even going to mess with DE lol....although I would have loved DE feb 87.5 calls at 2.00. All attention to the WTW strangle, but only 1 contract on each side, so far I'm only looking at an initial risk of about $650-$700. I'll consider recouping $500 a positive on the trade.

 

[atticus]

Quote from ryanpatrick:

At first look I wasn't too bullish too with resistance on chart at $77.50-$80 usually trumping all else. But it got interest when I went to get a look at WTW's short interest. I saw 14M shares short or a whopping 20% of float. This one could go the way of GMCR and NFLX where a slight beat or even inline report gives a big short cover rally afterwards and WTW breaks above $85. To the downside, I don't see WTW going below $70. With 3 weeks here at $75-$80 range, all the sellers have already sold....The only thing that can push WTW from $78 to $70 is if the earnings just missed......with 20% short float, any large investor who wanted to short is also already in play. The only investors not playing this one right now are the bull investors.

I got it.....I'm going to do a 1 strangle here taking the 82.5 call and 77.5 puts......I'm looking for $70 at most to downside, but I think upside is the wild card. Like I said before, WTW's +47%, -10%, -23%, and -11% swings should give a strong confidence that the stock goes in one or the other direction. Now, I'm not necessarily looking for profits here (FOSL and RAX gave me over $2000 in net profits today still holding FOSL but will sell before close today). Instead, I'm looking to test the strangle play here, and I'll mark WTW as a high beta stock with moves at +/-10% post earnings.

$6.50 debit on that strangle. I would actually consider selling that strangle to open a position.

 

[jeffalvinson]

Quote from ryanpatrick:

I'm not even going to mess with DE lol....although I would have loved DE feb 87.5 calls at 2.00. All attention to the WTW strangle, but only 1 contract on each side, so far I'm only looking at an initial risk of about $650-$700. I'll consider recouping $500 a positive on the trade.

Ryan,

A $650-$700 with 3 days left before expiration.....Yikes!
I could never do that even when I was young and daring.


Jeff

 

[ryanpatrick]

Quote from jeffalvinson:

Ryan,

A $650-$700 with 3 days left before expiration.....Yikes!
I could never do that even when I was young and daring.


Jeff

Yeah I see the higher risk involved, but I consider the trade today a test of that strangle...Truthfully, I would have rather set up a debit spread on the put and leave the long call open, but I want to see the strangle play out, and like I mentioned earlier, RAX +1394, and FOSL +1134 in profits gave me a total of +2528 in profits already. At worst I'm giving back about $680 from that profit earned today. After all, it did take me nearly the whole day just to decide to put this strangle in play lol. I'm exhausted now, could use a swim in the ocean too.

 

[ForexForex]

I think with the WTW trade you are "biting off more than you can chew", or in other words "you have too much on your plate".