Lesson Overview

Earnings Adjustments

You've made a great earnings trade but what happens if the company gaps much higher or lower than the expected move that you planned for?

When this eventually happens (and it well many times over the course of your career) you need to have a game plan in place to adjust the trade and reduce risk. In this video we walk through LIVE how it happened to us with a NFLX trade.

This generally starts with rolling up the side of the trade that the market moved away from and taking in more of a credit to increase your break-even prices. I'll also discuss possible scenarios where rolling the trade to the next monthly contract is a viable strategy.

More Discussion

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  • Larry

    Kirk,
    Your thoughts on why we didn’t roll CVX Like we did NFLX. I tried to buy back CVX right after the opening but never received a fill. Tried bumping up the price with no effect. Once it went ITM I didn’t have a game plan in place and for lack of a better idea I chose to bail out at Market price. I was out of the trade but paid the price, .56 cents.

    Larry

    • Hey Larry, yes we had the same issue trying to get filled on the trade and just didn’t see enough premium in rolling it to the next contract month (I think net we could have gotten $15 or less). At that point I believe our money is better spent elsewhere.

  • Larry

    Kirk,
    Knowing how to reduce risk by making adjustments or hedges sure has taken option trading to the next level for me Can we see some more examples of adjustments with other strategies like straddles, butterflies ect… especially post earnings?

    Gracias,

    Larry

    • Hey Larry that’s great to hear you can check inside of the case studies section as well for more examples.

  • Hey Andy, I try to pick a strike right ATM or just OTM, never ITM.

  • Yes, if it costs us a debit to roll we generally won’t do it.

  • Dexter Wee

    Hi Kirk

    When the expiration date is close, eg 2 weeks out, the credit received vs the potential loss is too great to make sense off rolling the unchallenged side up.

    What would you advise at this point ? take the loss ?

    • Yep – if you can’t roll for a credit, let it ride and take the loss.

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