3 New Earnings Trades CMG, YHOO, CREE

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Earnings trades: In tonight's video update, we're going to go over all of the trades that we made on Tuesday, October 20th. Real quickly, we went ahead and closed out of just the put side on our IBM's earning trade for $20 loss. This was a stock that went almost right to the edge when the market opened.

The stock opened lower and inside the expected move but then continued to rally against us. As always though we closed it early in the morning and thanked God we did because we probably would have been holding a much bigger loser at this point. We did get that drop of implied volatility that we were looking for, but as a far as price action we just saw IBM stock move a little bit more than expected. At the end of the day $20 loss, we'll take it and move on. 

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earnings trades

Three new earnings trades today. All of the same nature. Short premium lots of high implied volatility. We'll start off with CREE. We always do the weekly options when available and possible for all earnings trade. That gives us the most volatility juice. That also gives us the shortest duration which means that when the announcement comes out, those options are going to fall in value quicker than a monthly contract.

So we always want to do those weekly contracts when they're available. With CREE, we did the straddle right over the money. The 25 call and the 25 put took in a nice big credit of $215 and again that credit that we take in helps move the break even point out by $2.50 on either end. So moves the break-even point $2.50 out on either end from our strike price at 25.

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You can see our strike price at 25 was, we had to pick a direction a little bit directionally, I guess bullish maybe is how we're tilted based on where the stock closed at 24.91. For all intents and purposes, we're pretty neutral on the stock heading into earnings.

Now the stock I believe did announce earnings after hours and is trading right around the same value, so stock is about right here 25.10. You can see our break even points are out here past 27 and down below 23. It should end up being a nice good closing profitable trade.

The next trade that we got into is Yahoo. We sold the straddle in Yahoo as well. So high implied volatility in Yahoo sold at 33 calls, and 33 put for a $175 credit. Again that $175 moves our break even point out even further on Yahoo.

I like doing the straddles on stocks on this that have high implied volatility but low cost so the cost of the actually stock, you know $32 doesn't cost a lot to hold a margin position in this. So you can afford to do this straddle strangle type trades versus like a Chipotle, which we'll talk about next. That's at $700 stock. It's going to be a lot more expensive to hold a naked position on something like that.

With Yahoo again we did the 32s on either side. No, not the 32s we did the 33s on either side, which is just slightly bullish from where the stock closed. After hours it's trading down a just little bit, and you can see again it should be a nice profitable trade. We'll see how Yahoo ends up.

It's just slightly trading a little bit lower after hours. I think honestly the last trade in Yahoo was right around 32 1/2 or so. It looks like it should be a nice earnings trade as well. We should be able to close out for a nice good profit.

Last earning trade that we did today was the Iron Condor in CMG. Again, we did the Iron Condor not because we don't like implied volatility or where it's at. Implied Volatility's high enough in CMG, we love to do a straddle, or a strangle but in this case, it's at $700 stock.

So that cost, that margin cost to hold something on a stock that's this high in price is going to be high. So we went ahead and did the Iron Condor. We did it five points wide on each end. So you can see it's a five point wide Iron Condor which means our spreads are $5 apart.

We sold the 775 call and 780 calls we bought and then on the put side we sold the 635 put and went down another stick and bought the 630 put. So five dollars wide again. At the end of the day we took in $144 on each of the two Iron Condors, we sold in Chipotle.

Now, Chipotle again, high implied volatility in the 94 percentile. The marketing is expecting a huge move out of stock and, we just wanted to be as neutral as humanly possible heading into this move. So when you see Chipotle, the trade tab you can see the market was expecting about $52, $55 move and after hours right now it's right in that range.

I mean it's traded down as 640, which would be a $60 move but it looks like it stabilized right around 660 or so after hours. They already announced market didn't like it. The market is trading down on Chipotle, trading around 660 or so right now. That's good for us because of our strikes again on the put side.

Our short strikes are down at 635. You can see we've still got a lot of distance between ourself and the market. Market's trading right here about 660. We start losing money down here at 665. I know the market is jumping back forth here on the chart, but you can see how wide this position was when the stock closed today around 700. We just were able to sell options far out on either end.

That's ideally what we wanted to do. We wanted to start that position about the 15% probability on either end and hopefully, we get this thing out at nice winner tomorrow, early in the morning. We expect the stock to open up somewhere around 660. That's where it's trading right now and after hours.

This thing can move very quickly after it opens. So, Chipotle is one of those stocks were as soon as it opens you want to be out of the trade early in the morning. Obviously, we'll try to get out of the trade just as soon as we're able. It's one of those stocks were if you have profit on the table you want to take it because it can turn around on a dime.

We have been burned a couple of times not getting out early enough or quick enough on trades like this. As always I hope you guys enjoy these videos. IF you have any comments or questions, please ask them right below and until next time happy trading.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.