COH Earnings Trade $166 Profit

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Earnings trade: In this video update, we want to quickly go through just one single closing trade that we had in COH which was Coach. And this was a trade that we got into yesterday. This was an earnings trade that we got into late yesterday about 15 minutes before the market closed. And I know that a lot of people have asked and continued to ask if I’ll send out these earnings trades early.

And the answer to that is no, because I don't know what the eventual strikes are going to be because they might change, and two, we’re not going to enter trades early in the day because the whole point of making an earnings trade is to wait until the end of the day to make the trade.

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Now that said, you can check out or watch list and earnings calendar which is right here located on the website on the platform. There's a ton of information on there, and we did have Coach on there as a possible earnings trade that you can check out. Also in the forums, if you see the forums and navigate over to there, there's a ton of discussion.

And since they’re all pro and elite members anyway, there's a ton of discussion on possible trades. Like here, there are 11 comments already on Course, and then there's Yelp, people adding comments there. And then you can see more on Yelp and then BMY and just a ton of discussion here already on so many other earnings trades that you can go in there and add your two cents.

Here was the discussion on COH and you can see that we talked about already in there, doing an iron butterfly a day before. Get active on the forums is another way to do it. But the reality is that if I were to send out just to even let you guys know what possible trade I was thinking about, the strikes might be different or the price may be different, or the stock might move, so it would cause more confusion to do so.

It’s much, much better if you just know that we’re going to be trading Coach and you can trade it the same way that we teach inside of the platform because we’ve got a whole section on earnings trades. I just want to add that comment in here again.

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Now in the case of Coach, like I said, we went ahead and did the iron butterfly, got into that yesterday for a $223 credit. Implied volatility wasn't great. But today when Coach opened up, implied volatility dropped down to the 13th rank very, very quickly and this helped this trade make some money pretty quick. Even though implied volatility wasn’t as high as we wanted, we did see that quick, dramatic and rapid drop in volatility, and that helped solidify this position.

Now Coach early on opened up around 40, but then quickly rallied and spent most of the day around 40 ½, 40.70 or so. Like I said in the comment of the alert, what we ended up doing is just closing out three of the four legs. We apparently bought back our inside legs, the short legs. Those were the natural thing to do.

You always want to buy back those short legs. You don’t want to risk those going in the money. We bought those back and then we sold back the 38 puts. And the reason that we did that is that they were worth a little bit of money.

Now in our case, the ones that are above the market, the 45 puts that we still have, they’re not worth anything. There was no point in selling those back. You can see they’re worth about $2, probably cost depending on your commissions a $1 to $5 some people are paying fees. It’s just not worth paying $5 in fees to get back $2. I mean, you’re still out of the gate some money. Just let those expire and obviously be there worthless. Again, a little bit of different type of action here with COH.

But again, if you think through it just logically and the thought process behind what we did, it makes total sense. With these 38 puts, there were still a little bit of value left in them early in this morning, so we went ahead and sold those out. You could’ve done it in one single order which is what we did, or you could’ve broken out into the straddle and then the single contract. It doesn’t matter how you did it.

But eventually, you could’ve gone out of those trades. At the end of the day with Coach, we settled with a $166 profit which is not too bad, considering that we have money invested for about 15 minutes overall between yesterday and today. And again, it just goes to show you that this power of implied volatility and making these earnings trades when they’re appropriate is necessary.

Now on that note, one trade that we didn't get into that we mentioned that we were going to look at yesterday, but we didn’t get into today was Yelp. Yelp had implied volatility spent most of the day having implied volatility actually below 50, and then just ended the day at about 51 on a late day rally. This is a trade that we did not get into. It’s too borderline.

We did try to get into KORS which was KORS, and we sought to get into that one with a bunch of different credits. But you can see we tried the pretty much-working order from this afternoon on, tried some different prices here that you can see here and move it around just slowly and didn't get filled at anything. We started trying to fill that around 2 o’clock, didn’t get filled; it nearly traded right there the whole time. But at the end of the day, we just didn’t get a fill on KORS.

And sometimes it happens. I know some people did get into it, so best of luck tomorrow when they announce. I believe they announce tomorrow morning. But decent implied volatility and something that was definitely on our radar we just didn’t get filled with. As always, hopefully, you guys enjoy these videos. If you have any comments or questions, please ask them in the comment section 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.