Adjusting Earnings Trades – GPRO Loss Cut to Just $9

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Earnings trades: In tonight's video, we're going to go over all the trades that we made for Monday November 2nd. In addition to that, before we go over the trade that we had in GoPro, which I think is a great example of how we adjusted an earnings trade that went against us and basically turned this whole thing around from what could have been a multi $100 loser into about a $9 loss.

I want to get into that, but before I do, I want to talk about the trade that we had on Friday. We just had one quick final trade on Friday that closed late in the day, but our closing trade of our SLV put debit spread. We sold back our put debit spread for an $80 credit. We bought this thing for about $60 and basically took a nice little $60 profit on all those contracts. 

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At the end of the day, with SLV it just took a little bit of time for the stock to turn around or for the ATF to turn around. We entered this trade almost back towards the beginning of October. It went nowhere until these last three or four days here. It just took a little bit of time, a little bit of patience on our end to wait it out and see if we can get that drop in the stock price that we were hoping for.

The other trade that we got out of today is our IBB put credit spread. We had a put credit spread that we sold below the market. We sold the 300, 295's. We bought those back for $50 debit each. Took a nice big profit of about $170 on each of those. With IBB this thing was kind of all over the place and traded lower as the market dropped.

Now our intentions with this trade originally were to enter it down here near the bottom. Again we've held onto this trade for quite a while as the stock has rallied and as implied volatility has dropped. Both of those things moved in our direction, but this was a trade that we initially entered because it was a bullish position specifically to give us some exposure to the bullish side of the market.

If stocks were to rally from the bottom, again we entered this trade all the way back here at the end of September. We needed to have some trades that made money as the market rallied. That's part of our strategy here with keeping things as balanced as possible.

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All right. The closing trade that we had today, the other major closing trade that we had today is we bought back our inverted strangle in GoPro, GPRO. We bought that back for a $6 debit. At the end of the day after all adjustments, and we'll go through that here in a second so that you can see them on our end, we ended up with only a $9 loss.

Now, this is a stock that moved 100% against us. After earnings, it moved outside of the expected range that the stock was trading in, but because we adjusted using the same techniques that we always talk about, rolling contracts, adding the closer option and going inverted if you need to, we were able to get back almost all of our money except for $9 on this trade. I just think it's a really good example that we're going to go through here tonight.

Again we bought back our inverted strangle in GoPro. We bought back the 26 calls and the 30 puts for a $6 debit. After all the adjustments and everything, we ended up with a $9 loss. Here's a look at where GoPro was. Again remember, this stock made a huge move after earnings, much further than expected and all we did was roll our contracts out to November.

We had these weekly contracts that expired here. Had we done nothing on that first initial move down, we would have been left with a multi $100 loss that particular day. Now the stock didn't move anywhere over the next couple days, so it didn't move anywhere between Thursday last week and then today, which is Monday.

What happened was is that we got a further drop in implied volatility. With that further drop in implied volatility, the options that we had that were now out in November expirations saw a further drop in their value, which again helped up get back to or closer to even in our trade.

Here's a look at the trade history. Again this is all archived in here, so you guys can see this. Of course, it's always through our platform you can go back and see any of the videos on any particular day, but on 10/28 we went back and sold the straddle for earnings in GoPro. We took in a 414 credit on the 30 call and 30 puts, so we were aggressive, high implied volatility wanted to do something aggressive.

The next day GoPro opened down much lower, so right early in the morning, 9:33 and then 9:44, we made our adjustments as we always do. We rolled out our put side from the weeklies to the monthly contracts out to November. On that particular trade, we also took in a credit of $37, so that adds to our original credit of 414.

Then we added the 26 call, which was much closer. Instead of having the 30 call, we rolled it down to the 26 call, and again we added another credit of about $1.40. After everything was said and done, you can see we bought back now the remaining position for that $6 debit, which leaves us with just a $9 loss after everything's said and done.

Again the key here is that we gave ourselves more time. We gave ourselves more time for the stock possibly to come back up, even though that didn't happen or for implied volatility to continue to drop, which usually always is going to happen. In this case, it worked out to our advantage.

Again I always think that your best opportunity with some of these earnings trades that go against you is to give yourself at least a chance. Right? If you can roll these contracts for credit, like we did, on both sides, I mean you're not always going to get an opportunity to roll both sides for credit, but in this case, we rolled both the put for a credit, and we added the additional call obviously for credit.

That gave us more credit to widen our break-even points and widen our strikes. That just really helped us solidify this position and give us a little bit more sound footing as it moved through the November expiration month.

As always I hope you guys enjoy these videos. If you have any comments or questions, please add the right below inside of this page here on optionalpha.com. 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.