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 ..

Algorithm progress!

Finally I think I have a plan ...

One thing I have learned in reading is that these algorithms tend to stop working over time as more people get in on them. So it isn't in any of our interest for my to disclose all the details.

I can say that it's based on the tried-and-true iron butterfly:

Oops, not that one; this one:

Once again, I'm keeping this vague ... but I'll be ready to start testing this (in a small account of my own) within a week or so. I'll publish all the results here from the first trade onward and will probably do this for 6 months or so before rolling it out to others.

Best of luck to all of us!