PCLN Earnings - 1080/1100/1120 Call Fly - Paper Trade Price target after earnings $1100.00 Buy 1 PCLN Nov8 2013 1080 call @ $14.80 Sell 2 PCLN Nov8 2013 1100 calls @ $8.50 ($17.00 credit) Buy 1 PCLN Nov8 2013 1120 call @ $5.30 Maximum loss $310.00 Maximum gain $2,000.00 - $310.00 = $1690.00
The problem with flys is they have such a narrow range of success. You have to be a real sharpshooter to hit the mark.
And your fly is now worthless. Are you basing this trade on some sort of directional edge? Or merely trying to maximize your risk:reward? Either way, it's a binary wager.
Ok... But how replicable is your strategy. It would be quite difficult to incorporate the stock's drift throughout the day following the report as a valid data point. Assuming favorable price action in order to salvage your trade, doesn't really work as a model input. Perhaps next quarter the price will go the other way. If you have a solid read on direction, just trade the underlying. Anyone can post a prediction on what XYZ stock will do the next day, and then claim we should have bought/sold calls/puts/stock. You're either right or wrong.
You are over-analyzing the trade. It's just a simple option position to take advantage of a pop after earnings, and since the IV is inflated making the options very expensive I decide to post a fly position to demonstrate how the cost can be reduced. Not many people understand how flys work. I doubt anybody can read the direction of a stock, I can't. I picked the calls because that is the overall direction of the market and PCLN. And an option position is a lot cheaper than buying PCLN. The title clearly marked this thread as a "Paper Trade", I'm not making any claims.
The fact the vol drops after an earnings report is widely known by the market. The trade was so cheap because it had a very small chance of winning. It's still a lotto ticket, wagering on a binary outcome. If I bought PCLN shares prior to the report, I made more money than your fly. I have a fairly good handle on how flies work. I could've easily posted several trades that may, or may not have, been winners. But, unless you have an edge on price or vol, you will not make money over the long-term trading options.
That's odd. The 1120 calls were higher than the 1100 calls, thinking Yahoo quotes were wrong I also checked Nasdaq and got the same numbers. That can't be right. Nov8 weekly calls 1080 daily high $5.00 1100 daily high $1.64 1120 daily high $2.54