The strangle does seem to work although its too soon to call it out. Here's some numbers to think about when doing these trades too. I got a 19% average swing for ACOM's last 4 quarterly reports and I'm only talking about intraday highs the day following earning reports. Taking the +42% pop outlier, then we have 10, 13, and 14, which comes to 12.3% avg swing. With the ACOM strangle I played yesterday costing me $1.77 or about 10% of ACOM's swing (calculated that by (1.77 + 1.00) (from the fact that ACOM shares closed at $28.5 compared to my 27.5 puts)/27.5 put strike. If ACOM had just hit the avg swing, then from 28.5, we'd see 25.1 and I should at least get 2.4 - 1.77 = 0.63, As I initially increased my odds to 2/3rds by taking both direction and only losing if something like WTW pans out. My odds also greatly increase knowing that ACOM has on avg swung 12% from its previous day close price. I'm not one with some math formula, but after these simple calculations, I'd say I like my odds. I'd say the odds of me closing the trade with a net profit is at least around 75-85% of the time. Of all the components, the only unknown is what can management pull (especially when they know the stock will take a hit) to keep the stock leveled. I did close out at avg 4.00 on the puts....once ACOM fell below my high expectations of $24, that was it for me.
I am all cash now at a little above 9400. Net gain on wtw was about 394. Now I'll go see if NTAP has legs, and whether there's profit in an AAPL 20 point move over the next 5 trading days as Monday's an off day. Also like ROVI puts as well as ARUN, JWN, and ESRX calls...just initial research and have dug deeper just yet.
Ryan, Your math and overall thinking on this trade was perfect for these kinds of trades. Do you remember a few days ago I mentioned that the call/put debit should be under 2.50 and that under 2.00 is best? Then all you need is the prior stock price range history (like you mentioned in this post) to support the profit potential and a catalyst to trigger that range movement (an earnings catalyst is good). Every element of a perfect trade was there. Great job! Jeff
How about 1.99? 1.50? The point is the vol is priced into the debit. Bigger vol = bigger debit. You should not be arbitrary in pricing spreads.
Okay! Thanks Ryan. You are trading as close to ATM as possible. I´m setting up another experiment today. My straddles on the following, day after earnings, right now, are; CBS lost -$70 including commissions XEC straddle earned a net after commissions of +$935 CTL straddle lost with commissions included - $40 CAR straddle won +$25 after commissions. So I have for this paper trading: + + $960 net A loss of - $110 Net profit was + $850 for the three days involved. Very Interesting using the straddles to see how it actually came out? Would have to repeat this a few times to see if it would be repetive? _________________________________ In the meantime I´m setting up to paper trade today and will do both a STRADDLE and a direct guess on direction bet, on five earnings reports. FSTR, SFL, LECO, LPNT, ACTG are the targets for this. The reports come out tomorrow and should be available by end of day, or Monday latest. ____________________________________ Did you compare yet, the STRANGLE vs the STRADDLE ?
Ryan, you are bad to the bone....I laugh at all of the expert naysayers predicting your doom looks like you've got something golden here
LOL, sorry I had to laugh, because that was my exact point sometime ago too....The question was whether price movement is already priced into the options. From a theoritical point of view, I would have thought so. BUT, from the reality of the trades and experience, I can tell you that only part of the price movement is priced in, especially when the options are due to expired within the week. Time and time again, I've learned that the price was not priced into the options. Which is why I mentioned yesterday about WTW. The only thing that even kept WTW afloat or at -2 to -3 point move instead of -10 points was that share buy back program they announced. Track those numbers and let me know if market makers have really priced in the total risk of the move on these earning trades. I'd say I would not have made consistent profits if the options priced in the expected swing on these earning trades.
thanks lol, not bad to the bone, but I consider myself having enough notes on the trades I make to produce at least a consistent profit, if not a high winning percentage. I have 24 winners vs. 21 losers. so about 50/50 in that department. Avg of $590 profit per winning trade, and ($270)per losing trade.
As for the market, just checked my new highs/new lows indicator at yahoo finance....and I don't like the 5:1 ratio and 7:1 ratio of new highs vs. new lows at all especially with this +80 on dow jones. To compare, when the market was up this big the last 2-3 weeks the ratio was 20:1 on NYSE and 10-13:1 on Nasdaq. Looks to me like leaders are getting tired. Not necessarily a correction, but something's brewing.
those numbers are the proverbial "holy grail" which all professional traders strive for. If you can keep it up then all you will need to do is scale this thing....