Lesson Overview

COH & HAL Earnings Trades

Limit orders are the most widely used order type because it guarantees that you get into or out of a trade at the price you want. For 99% of the trading we do here, I'll use limit orders to make sure that I get the price I'm after. Using limit orders requires you to be more patient in your trading but as position and income traders we don't need to be super fast getting into and out of day trades.

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Today, we’re going to go over all the trades that we’ve made for Tuesday, October 28th. Rounding out the month here as we get closer to ending out October, still lots of earnings trades on the calendar.

We didn’t have a chance to get into any new trades today. We had a couple of off-name earnings trades that we were trying to get into, but just didn't get filled, so it is what it is. You just can’t chase the market too much lower or higher for pricing.

You just have to sometimes go with a no trade and that sometimes is a good trade. We did have a couple of earnings trades that we were able to close out of today which was nice and banked some profits.

The first one that we’re going to talk about is COH which is Coach. The coach had a nice 6% move lower today, so it did open up much, much lower, but that was the one standard deviation move that it usually makes.

And with our strangle that we had, we had the 39/33 call and put on Coach; we were able to buy that back literally within 10 minutes of the opening bell for about an $.18 debit, so a nice $62 profit on that one lot.

That’s a huge gain for just a one lot trade. And you can see here's a picture of what Coach looks like. You can see a nice big move lower after earnings, so it did have a nice little jump after earnings, but that stayed right above where we need it to which is 33, so it stayed right in that range.

And of course, here's the killer for those option premiums and that is the drop in implied volatility. This just goes to show you just like I showed the other day in the take-five segment on YouTube that we do. It’s just five minute long videos throughout the day.

But this just goes to show you that had you bought that strangle that we had and assumed a big move in either direction, a lot of people who bought that strangle.

There’s somebody on the other end that bought that strangle because they had to sell it to me, they lost money even though the stock went 6% in one direction which is a huge one-day move for any stock and they lost money purely because of the drop in implied volatility.

And we’re going to cover this more tonight in the earnings webinar that we’re doing, but you can visually see it here on the chart. Twitter was a little bit different. Twitter, obviously a big-name stock.

It’s the first time we traded it, and we can tuck up a nice little $2 loss to Twitter. But Twitter did open towards the lower end of this iron condor, so we had the 54/55 call spread above the market and then we had the 42/41 put spread below the market.

And we decided because Twitter did open up very, very close to 42 and started to trade below 42 earlier in the day that we just wanted to make this a scratch trade because Coach was going well.

I didn’t want to let Twitter run down. I didn’t know if it was going just to continue to fall throughout the day. It did end up rebounding as the whole market rebounded, but you don’t know when that’s going to happen.

And we’re not playing Twitter for the actual rebound. We were playing it for just that one-time move inside of that range and a drop in implied volatility. And we got the drop in implied volatility, but we didn't see Twitter move inside of that range until later on in the day.

We did decide to go ahead and close that out with a $2 loss, basically a scratch on the trade. When we go to the chart here of Twitter, you can see a huge drop in implied volatility. That's exactly what we're looking for.

And every single time that it's had earnings, it’s had the same drop in implied volatility, there’s nothing new here. Every single time on the chart that it's had earnings, we’ve had a drop in implied volatility.

But Twitter did make a pretty good move lower which I think some people were a little surprised about because earnings had been so good the last couple of times that it started to trend higher and move from the upper 30s into 55 territories and now has continued to move lower.

It did close the day higher, but it was testing us to the lower end, just no sense in keeping that trade in our opinion, just didn’t want to take on the risk.

The other trade that we got out of… Well, although it wasn’t a one-day earnings trade, this was a trade that we had made over earnings for Halliburton, and that’s ticker symbol HAL, and we were able to close this thing out today for a $.36 debit.

We’ve had this working order for about three days now. We had this working order last Friday, then this Monday, and then today, and we finally got some fills, got all of the stars aligned and everything filled in there.

One of the techniques that we tried to do was split the order up and close out the individual spreads. That’s something you can try as well, but it didn't work for us this time. We had more success closing out the whole iron condor by itself.

But that's something I did try during that process just to give you guys a little bit of insight, is splitting up the orders, try closing out the call spread individually, and then closing out the put spread individually, legging out of that iron condor.

But it didn’t work in this case, or else we would’ve sent out the different alerts for that. We did close out the whole iron condor for a $.36 debit and banked a nice little profit on a one lot trade of $58.

For Halliburton, it was just a matter of the stock finally seeing some drop in implied volatility, but not moving outside of that range that we initially put it through which is the 60/47.5 range are after earnings.

We did go through earnings with Halliburton. You can see we got that nice drop in the implied volatility. That's exactly what we wanted. And the stock stayed range bound between 60 and 47.5 which is just below the chart.

It moved up towards our upper boundary and then has settled in back neutral here, so I don’t want to take the risk of running this thing all the way through expiration to see it run higher or lower because expiration is so far to the right of our chart here that it doesn't really make sense for another $36.

We’ve made over 50% of our max gain. The smarter trade is to close this thing out and bank the profit and move on. For adjustments today, we had a couple of adjustments. The first one I want to get to is BIDU.

BIDU is a little weird, and I don’t know if I just missed this, and this may be one of the things that I just missed trying to enter trades here, but I swore that BIDU actually had earnings today, and then when I looked at BIDU this morning, it said that it had earnings later today.

And I said, “Maybe I missed earnings that were later today.” And I looked in Thinkorswim, and I remember looking in Thinkorswim yesterday to make these trades because I don’t just arbitrarily pick these tickers.

I look through that calendar and that market watch section in Thinkorswim, and now BIDU has earnings tomorrow. I don’t know if they’re pushing earnings and they’re just changing their dates, or they haven’t been confirmed dates.

Right now, we’re in the middle of a trade that should’ve been an earnings trade because it’s a weekly trade, but now is turning into a little bit of a position trade because earnings aren’t until right now.

They’re supposedly going to be tomorrow after the open. Here's what we did in BIDU because it did have a nice little run-up today. We wanted to go ahead and add some more premium to the position because implied volatility is staying high.

With the run-up, it’s starting to test our upper boundary on the call side, so what we did has we first added a put side to this trade, we added the 225, the 220 and took in a nice big credit of 195.

That means that our credit on BIDU now is much more than the potential that we could lose, but that also leaves a very narrow window for us with BIDU earnings.

The other thing that we wanted to do is that as BIDU was rolling higher, we wanted to protect ourselves from the downside.

Instead of closing out of our original put spread that we had, the 200/195, we went ahead and just bought back the one short put that we had at 200. We paid $.35 to buy that putback. That leaves us long the 195 put.

And that to me is a lottery ticket and a hedge against possibly bad earnings. We saw a lot of stocks like Netflix and for Solar and some of these things are just moving huge, huge lower, Chipotle, some of these big names are just having blowouts where they’re moving a lot lower than everyone expects.

In that case, I decided just the long option is not costing us that much right now because it’s not worth anything, it was not worth too much like $10, $15, I decided to keep that long option as a lottery ticket.

When we go in here to the analyze tab of BIDU… Change account here. Make sure it’s in the right account. Here’s the analyze tab of BIDU, and you can see what we did here today by adding the 225/220 is we re-centered the iron condor over where BIDU is trading right now.

And we may make an adjustment tomorrow or probably just leave this trade on tomorrow, but you can see that BIDU is trading right here on the middle screen of the screen, and by adding that position below the market, we took into account what BIDU did and basically adjusted this position higher to take in more credit now that it's testing us to the side.

But what you’ll also notice is that down below on the chart, we have now just this long option out here. What this does is this protects us against a big move lower. If it does make a huge move lower, then we have the opportunity to possibly get out of the trade well before expiration and maybe even bank a little bit of a profit if it blows up in everybody's faces.

I don’t necessarily think it’s going to happen. I don’t assume that stocks are going to blow up earnings and make a big move lower or higher or whatever the case is. That's why I don't trade those outer ends.

But this put option that is down below at 195 isn’t costing us any money, so at this point, it’s acting like a really big safety net in case something really bad happens, and BIDU opens up 10% or 15% lower the day of earnings. That’s the BIDU adjustment that we made.

Alright, the last adjustment that we made is a series of adjustments and that’s all on X. A lot of you who are still following the X trade that we’ve had, we’ve now rolled everything and basically what I said in the trade remarks when I sent out the alert was that we'd rolled everything from November to December.

Now, how you do that is you sell a calendar spread. That’s logistically how you setup a trade to move a short option from one month to the next month.

In this case, the calendar, because you sell the front month and buy the back month, we’re going ahead, and we’re selling a calendar, so we’re going to reverse that, and we’re going to buy the front month back which is the November.

In all of these cases, we bought the November options that we were short and then we entered new December options at the same strike price. Now, you'll notice in all of these cases because we were trading the further out contract month now, we took in an additional credit.

All of these options were continuing to take in all these credits and extend our trading duration, so we extended it all the way out to December. The only options we didn’t have a chance to roll today just because we didn’t get filled were the 44 puts.

We do still have the 44 puts which we have for November, and obviously, we’re going to hold them through earnings this evening and see what happens, and they roll them to December tomorrow hopefully or maybe close them out if they’re profitable.

I don’t know what’s going to happen with earnings, but we’ll manage those puts so that they’re out with December options with everything else.

But the reason that I did this, and I mentioned this in the trade remarks as well, is that X still has very high implied volatility and is going to go through earnings this evening.

What I wanted to do is take advantage of this high implied volatility now because this high implied volatility is not only affecting the November options, but it’s also affecting the December and January and all those other options that are out there.

If we can take advantage of this high implied volatility even through this earnings event where we know that implied volatility is going to drop, then that might give us a little bit more premium in our piggybank to hold onto this position for another month or so and continue to see if it can manage a profit.

If we look at the analyze tab here of X, you’ll see that now with the new adjustments that we’ve made; we still need the stock to maybe move just a little bit lower, we don't have the 44 puts in here yet.

But you can see that if we hold this position and if the stock moves somewhere between 33 and 37, we actually could make about $3000 or $4000 back on this trade which would get us very, very close to overall breakeven on all of the trades that we’ve made.

This whole idea of extending and extending timeline and extending the trading duration and keep taking in credit has been working very, very well. And we’re going to continue to hold this position because it is a big position for us.

We want to use this as a case study in the future of why you should hold onto some of these positions and let the market work for you.

It just takes time, it takes patience, it’s hard to hold positions like this, but you have to make adjustments along the way to keep adding credit and keep extending the trading timeline until you’re able to whittle down that loss or potentially make a profit back.

That’s what we’re doing in X. We’ll see what happens tonight with earnings. We don’t know what’s going to happen tonight with earnings, so it’ll be a nice little surprise for us tomorrow, and we’ll see where it ends up.

As always, I hope you guys enjoy these videos. If you have any comments or questions, please add them right below. I’ll be happy to get back to all of those tonight or tomorrow before the open.

And if you’re watching this on YouTube, and I don’t say it enough, but you’re getting this video if you're watching it publicly on YouTube about 15 days after we make these trades.

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