/ES futures cooperate (so I closed them out); earnings were not the whole thing, it turns out

Just when you think the /ES futures will go up forever, Mr. Trump steps in to knock them down:

Trade wars "good and easy to win?" Not so much

This returned volatility to the /ES futures and the market as a whole:

Back to the earnings discussion ... I was planning to do a lot more earnings trading, but I looked at the ones available two weeks ago and planned out my day on that Monday (April 29, I think it was) ... and even if I'd won them all I'd have made like $170 or so ... while risking at least $500 on every trade. So one loss could kill the whole day.

I went back and watched the "rising star" I had seen talking about this and I had missed 1/2 the discussion ... he said he wasn't trading just earnings but "moving toward indexes" ... sheesh.

I've had good success trading SPX butterflies in the past, so going smaller this time I've been using SPY, IWM and QQQ ... all with one-lot butterflies.

With the pop in volatility we got, this makes a huge difference in the credit we get for this butterfly trade:

              May 24                 June 7

QQQ        $5.12                  $8.46            +65.2%
IWM        $4.15                  $7.18            +73.0%
SPY         $5.70                  $11.37          +99.4%

Total risk on the SPY trade is about $1200, so if we take 1/4 of this credit, that's a 23% return ... in about 8 days (typically ... if we put these on with around 30 DTE, then 1/4 of the credit expires in about 1/4 of that time) ...

I actually closed the first set of these for small losses $100-$200 each, with about 15 days left in them ... Tastytrade's research shows that this is better than hanging on to see if such a trade will come back, and in this case the increased volatility seems to fully justify that.

I also am trading some other volatile underlyings:

More next week ...

Earnings season continues; leaving money on the table ... /ES futures update

Earnings season went into overdrive this week ... unfortunately I left money on the table on Monday:

First, one good thing happened early Monday:

I sold 4 Iron Condors on Friday and they were down 50% by Monday and closed out for a $100 profit (on about $900 of risk). I wish I'd sold 40 of them!

I made only one earnings trade: JNJ (a small winner) and then got distracted and left several other possible ones without pulling the trigger.

Two losers on Tuesday, CSX and BK ... both small losses (just under $100 and just over $100), fortunately. The 8 other earnings plays I did this week all won.

This was also the week we get to do the Fabulous NDX trade, which I sold for $559 (a one-lot) ... and on this one you get to keep all of it (minus a smidgen of commissions) when it expires worthless the next morning ... which happened as expected this time on Thursday a.m., since the Friday market was closed for Good Friday.

As far as the /ES, it's been zooming back and forth:

If it will just keep from zooming up I can continue to sell puts ... like the $925 batch (of two) I sold on Wednesday, expiring Friday the 26th ...

More next week ...

Disciplined trading (and luck!) yield excellent results (+12.44% this week)!

I had an excellent week this past week: all the earnings trades I put on won and the Fabulous NDX Trade returned to its former excellent performance ...

The discipline piece came into play on a MDB (MongoDB) earnings trade. I have been restricting myself to just the .08 delta short strike for these trades, only taking the .09 delta very occasionally when a .08 one doesn't show up. Anything closer in that this, I just skip.

MDB on the call side had just a .08 strike ... and then nothing else above that for me to do a limited risk trade, which I needed for my account to limit the buying power.

Well, I said to myself, I guess I can just focus on the put side ... which I did. I even thought of doubling up on it, but decided that was too much risk in one underlying ...

Another account I'm trading had enough buying power available to do a short strangle (undefined risk) at the .08 delta, the one on the call side being the 130 strike.

Look what happened:

Lucky me! My put spread was worthless where the short 130 call lost money. Still a profitable week for the person with the bigger account, but not as much ...

As for the NDX trade, it behaved as normally, closing at 7270 on Friday, well inside the one standard deviation short strikes I had: 7310 put on at 10am and 7290 at 12:30 or so (all times PST) ..

As far as putting the trade on later: it went back to its difficult-to-get-filled behavior I had been seeing, so I guess I'll have to continue to experiment with the timing and returns of these ...

But as an adjunct to the base of earnings trades, it's an excellent performer ...

More next week!

Another mixed week (and spring didn't come yet)

First, my natural gas 5-day trade didn't work ...  It's not spring yet:

The snow is slowly melting but we still have plenty around.

I give up on short-term trades except for the one I'm dependent one: the "fabulous NDX" trade ... and now earnings trades, which I have been testing for a few weeks.

This week I went 13-3 ... I made tactical error in one the losers, BKNG, holding on to see if it would come back in the next day before expiration. It was already below both put strikes, but not yet showing max loss. It continued down the next day (expiration Friday the 1st) So I should have closed it out quickly, the way things turned out.

I think Tastyworks may have BKNG marked incorrectly in options liquidity. They have a 4-star ranking system, and BKNG gets only one star.

But on entry to the trade I had a limit price of 56 cents but got filled at 82 cents ... then when closing out on Friday a.m. I thought I'd have to give as much as 20 cents extra ... it was a 5-point-wide spread so should have collapsed to $5 nearing expiration. I put in the order for $5.20 ... and it was filled at $5.03! This is better than some allegedly more liquid underlyings have done ...

So: $86 - $503  ... a $417 loss. Annoying, but it could have been worse ... and I also could have closed it out for about 1/2 that loss the day before, darn it.

BBY and VMW were also losers, but smaller ones that I closed quickly.

This week we have earnings reports from Costco and Target ... more next week!

Question answered: first losses in 0.08 delta earnings trades

I knew it couldn't last, but not with 3 in one day!

Garmin:

CVS:

This was a shortened week, with Presidents' Day keeping the markets closed on Monday the 18th ...

CVS and GRMN (Garmin) both went well outside their expected moves ... both were defined-risk trades and CVS was just on the edge of the short strike when I closed it the next day, so not a big loss. GRMN blew through both short and long strikes and stayed there all week when I closed it for a full loss. DVN was a short strangle that was worth multiples of its initial credit when I closed it early Wednesday, but not as bad as GRMN.

But everything else won: NTES, HLF, HFC, BHC,  DBX,  BIDU,  ROKU,  FSLR ... that's 25 and 3 (89.285%)  overall for the two weeks and still showing a profit.

Even though I have set "close for 50% of the credit" orders, sometimes it's better than that. ROKU I sold for 58 cents and would have closed it for 29 cents or better ... but 'better' turned out to be only 17 cents! If only I'd had 30 contracts instead of the 3 I sold ...

But looking at the largest loss in GRMN: what if I had sold a strangle instead?

I'd have gotten double the credit: 40 cents or so a contract, but the spike in price was about $10, from about $71 to over $81 ... the short strike would have been the same place I had it ($78) and the price I'd have closed it for should have been just a little different than I closed it for, not until Friday, for $3.04. So not very much difference in this case; I'll have to continue monitoring this.

In other news: I continue to be transfixed by very short timeframes and so sold a call spread in /NG, expiring Monday:

• short the $2.70 call
• long the $2.72 call

Credit $130; total risk $350 ... right now (Friday 7:34 pm PST) the price of the current /NG future is 2.698 ... if it will just stay there through Monday, that will be good. Spring is imminent, right?

I also have on the strangle on /NGJ9 options expiring in 32 days at 2.55 and 2.93 ... credit I got for this one was $330, which I want to get 1/2 or $165 ... fingers crossed. Of course I'd love to win both. 

More next week ...

First week of trading earnings: insights and lessons learned

I traded several earnings announcements this past week, including:

Overall I just about broke even, though my idea of using butterflies didn't work as well as I had hoped.

They just aren't wide enough; I can get much wider with Iron Condors or strangles (should I decide to try this undefined-risk trade ...)

Also their prices didn't seem to collapse as fast as the widely out-of-the-money options ... I had hoped that they would just be at least 15 or 20 percent lower priced on or near the opening, but that was too rare. I wound up just taking whatever small profit was there as soon as the market opened on these butterflies.

Also, the .16 delta Iron Condor for the high-priced AMZN was plenty profitable: I risked $350 to make $150 ... of which I took only $75, 6 minutes after the opening on Thursday ... that's over a 20 per cent return.

And I goofed and traded Paccar (PCAR) even though it doesn't have weekly options! I closed the position I had in my own account for a small loss but let this run in some other accounts I'm trading to see if I can get out for a profit early next week ...

Next week: GOOGL, CMG and CBOE, among others and I'll try applying these lessons to make a profit ...

I'll report back at week's end ...

The solution: earnings Iron Butterflies!

I took the week off trading after my annoying loss last week ... I've been looking for something else to supplement the Fabulous NDX trade (see the last several posts on this subject) ...

I looked at trading earnings reports the way Sosnoff and company trade them: selling premium and assuming that the results of earnings will usually be inside the "expected move" as calculated by the implied volatility (which is calculated for you on Tastyworks and ThinkorSwim and no doubt other platforms), like this:

See near the upper right hand corner? MMM (3M corporation) is expected to move +/- $7.42 from its current price. How to profit from this?

I watched this video from Tastyworks, where a "rising star" talks about trading earnings ... He said use uses "mostly strangles" (i.e. short strangles, an undefined risk trade) ... he says "very conservative" ... around the 0.05 delta.  Looking at this:

This is very likely to pay off, but the risk/reward isn't good enough for me ... on this 1-lot trade you'd probably make $25 or $27 ... while risking "undefined" losses. Almost certainly not an issue with this one: put the $25 in your pocket and go on. But there are a a couple of crazily volatile ones  that give you a large loss. This guy Shervin says "I scratched that Nvidia trade." ... here's NVDA for the last two years:

Do you want to trade undefined risk trades on this one? I don't.

I find that the Iron Butterfly (Tastytrade calls it "Iron Fly" if you're looking on that site) is a much more attractive trade:

Getting 1/4 to 1/2 the credit is 10% to 20% profit on this one, and even the max loss is manageable.

I can do 10 or 12 per week of these during "earnings season", so that's what I am going to do starting tomorrow, starting with MMM, WHR and PCAR.

Wish me luck! More next week ..

NDX, not SPX ...

I found an old email reference to this trade I mentioned: 91.7% winners on a weekly NDX trade, not SPX:

So I tried it yesterday:

• sold the 5990 put
• bought the 5980 put
• sold the 6100 call
• bought the 6110 call

This is a '1 standard deviation Iron Condor' ... for which I received $1.79 in one account and $2.00 in another account. The $2.00 credit give a nice round number for calculating the potential rate of returen: Max risk = difference in short and long strikes ($10) - credit received ($2) X 100 = $800. $200 / $800 = 25% return ... in less than 1 day.

But a funny thing happened:

All of these had earnings after the close (just after 1 pm PST), and they all had huge profits, which sent the /NQ (Nasdaq 100) futures on a tear:

If you had looked at this even at 5pm PST Thursday when it was flirting with 6100 and then bought 1 /NQ futures contract to hedge ... you'd have made over $2000 ($20/point), swamping the $800 loss you took on the weekly trade.

Next time, perhaps ... I'll try this again next week, not falling for the fallacy: "well if it's 91.7% winners and we got the loss out of the way the next 9 or 10 in a row should work, right?" I hope so, but the fact is the next trade has the same 8.3% chance of failure as the last one ... not much, but not out of the question.

Anyway, I'm 0 for 1 on these so far: $800 down (actually $804.something with the tiny commissions in Tastyworks ...) 

I'll try it again next Thursday and post the results again next weekend.