The PCLN Adjustment Backfired

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Option trade adjustment: In tonight's video, we're going to do all the trades that we made today, which is Wednesday, August 5th. Again, just a lot of earnings trade today had three new opening orders and two closing orders, one adjusting order.

Let's actually cover the adjusting order in Priceline to begin. Priceline actually opened up right inside the expected move, but then moved quickly outside of our range on the top side. Now we did make this adjustment, and I wish we didn't, but it is what it is.

It just kind of backfired on us a little bit, but we went ahead and quickly sold the 13.80, 13.75 put spread on the weeklies, so the same weekly contracts that we had. Priceline was kind of trading just outside of our range after the stock opened, and it was kind of sitting there for a little bit. 

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We thought maybe it would come down just a little bit and then continue higher, so we did sell this 13.80, 13.75 for $1.74 in credit. Now, of course, that reduces our overall loss on this potential trade. It runs around $140 or so, but the end result is that actually Priceline moved back inside of the expected move shortly after that, probably about an hour into the trading day or so.

It backfired on us a little bit. It is what it is. If the stock had rallied higher, it would have been a great adjustment. We'll see what happens. We are still holding that iron butterfly, that's just right over where the stock is trading right now.

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Here's Priceline. You can see that our iron butterfly is just a little bit higher than where the stock is trading, so we're going to hold this at least through tomorrow, see what happens. Then if we can roll this thing all the way out to the August monthlies or the September monthlies for credit, we will do that.

Again, just reduce some of the risk and some of the exposure on Priceline. As far as closing trades go, we did close out FSLR near max loss. We weren't able to roll that out to the next month for a credit. Just is what it is. The pricing didn't work out. We tried pretty much all day to roll it out for a credit.

You really couldn't go roll it out for a credit unless you went really inverted on the iron condor, and that's not really a smart thing to do, because you leave a big gap in your profit/loss diagram, where you could actually potentially lose much more than the original loss.

We don't put ourselves in that position, in this case, for First Solar, stock moved a little bit beyond the expected move and again, you don't want to put yourself in a position where you're actually paying to roll the trade out to the next contract month.

Again, for First Solar, stock moved up to the around 51. We weren't able to roll it out and so we had to close our 47, 49 call spread. On Zillow, that was a nice little trade. Zillow moved right inside the expected range and dropped. Nothing really to report there, so we were able to close it out for a $45 debit, sorry, not credit.

We bought it back for a debit and took in a nice profit of $125 on Zillow. As far as new trades go, we did enter a new trade in DD, which is here. We entered the straddle right over the market at 12. The stock closed at about 11.70, so we're just ever so slightly bullish with the midpoint of our strategy here at $12.

Right now the stock is trading a little bit lower after announcing earnings, so we're looking at a pretty decent trade in DDD after hours. You can see the stock is just trading a little bit lower. We took in about $150 or so in premium and based on where the stock is trading right now; we should make about $125, $130 back tomorrow on that particular trade.

RIG is the same thing, so with RIG we went ahead and did the 12 straddle right over the market. There's no typo there. Still the same price for both. In RIG we did the 12 straddles right over the market for 98 cents. So we took in a little bit less than DDD and RIG still had really good implied volatility, but pricing just wasn't as good with RIG as it was in DDD.

We were able to get the expected move and you can see that right now RIG is trading a little bit higher, around 12.90, 12.98 or so, after the market, or after it announced its earnings. It's trading just on the edge of our break-even point, so we'll see what happens tomorrow.

We might be able to close this one out for a small gain, small loss, or a scratch, somewhere in that neck of the woods. Then the last trade that we got into was a nice, wide iron condor in Tesla. Tesla had pretty decent implied volatility. It wasn't extremely high like it was in DDD and RIG.

We were able to do just the nice, wide iron condor, the 295, 300 calls well above the market, and the 235, 230 puts well below the market, for an overall credit of about $1. After the market had closed, Tesla announced earnings. It's trading down just a little bit at 253, so right between the range that we wanted to see.

It's trading down from, I think, around 270, is where the stock closed. Yeah, about 270 is where the stock closed, so it's trading down just a little bit, but right inside the range that we wanted to see. That ends up being a nice trade as well. That pretty much covers the bases for us tonight, as far as all the trades that we made.

Again, lots of earnings trades tomorrow, so just be ready for those. As always, if you have any questions at all, please let me know. Add a comment right below this video, and we'll talk to you guys soon.

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.