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 ...

Opening of spring "earnings season" inauspicious .. short /ES painful, short LYFT just fine!

Three banks had earnings on Friday ... two won and one lost (JPM):

So after 3 earnings trades this "season" we're down a few dollars ... JPM lost more than the other two together won ..

I did dodge one bullet and made one smart trade, I think:

Since the /ES futures had been bouncing off 2900 and going back down every time they touched it, I thought, hey, a 2905/2910 short call spread! Why not? I didn't, though, and on Friday:

I am continuing to sell puts against my short /ES position, but this just gets it further away, darn it ...

But my best trade of the week concerns ride-sharing company Lyft ... I can't find the reference where this was mentioned, but I heard on Tastytrade, I think, that they've so far lost $17 for every ride they've given.

And their IPO has been less than stellar:

So I sold the 69/74 call spread expiring May 3 and should get 1/2 the credit on this on by April 22 or so ...

Earnings season takes off next week, with some big ones:

More next week!

I took a week off ... short /ES not working yet; undefined risk vs defined: 2 tests

I didn't post last week as I traded only 1 earnings trade, the ill-fated Walgreens-Boots Alliance (WBA):

There have been only two losing earnings trades the past couple of weeks, WBA and CCL:

Both were short strangles: undefined risk trades. Let's see how they actually performed vs a theoretically defined risk alternative.

First, CCL. This was a textbook case. It just broke barely through the short strike early a.m. after earnings, and I was able to close it at the suggested max loss: 2x the credit received, almost exactly. This is right at $50/contract loss.

WBA was much worse ... I didn't get to this one until it was priced $2.91, way above the same sort of max loss I'd have been shooting for ... I got almost the same credit, 25 cents for this one. So that $241 per contract loss.

Let's see what each of these would have been if traded as defined risk trades.

I've typically been using $5 wide strikes, so max loss would be $500 less the credit received. For a 25 cent credit, that's $475 max loss per contract. That's clearly much worse than either of the undefined risk losses shown here .... I'm not positive that this is representative of the typical, but it's compelling enough that I'm going to stick with this for most low-priced underlying and a few a bit more expensive too.

The not yet working trades I put on this past week: short /ES futures. I thought that when the /ES hit 2880 that wouldn't go much higher ... and then the jobs report came out happy and:

Darn it! But: I am selling puts against the short /ES positions, at the rate of around $375 per week per contract, so: it can't go up too much from here (can it?) and I'll be "reducing basis" every week in pursuit of profitability on this one.

More next week ...

A perfect week trading earnings ... going into earnings "desert"

Only 5 tradable (more about this below) earnings reports this past week:

All cooperated with the .08 delta earning trade; the account where we were doing only these trades was up this week 2.74%. For the three weeks after we made the last adjustment to the strategy (making sure we never come closer than the .09 delta), we're averaging +6.94% per week ....

We set closing trades to get out with 50% of the profits, but sometimes we get a bonus:

See? We sold this Tiffany spread for 48 cents and put in the order to buy back for 24 cents, but the price had collapsed enough that we got filled for 15 cents just 40 seconds after the market opened on Friday. That's 68.7% of the credit we got instead of just 50%!

Next week is also sparse: 6 tradable earnings reports, as far as we can see right now, then ...

There is a two-week break then until Thursday, April 11, (actually before market opening on April 12, so the trades have to be put on Thursday the 11th) when three big financial companies kick off "spring earnings season:"

Then there are plenty!

So what makes a "tradable earnings report?" 

If you're trading them as wide as we are (once again, about 2x the expected move, 0.08 delta), then that requires a higher stock price (over $25 for sure, preferably above $100) to make sure there's any premium at all in the options way out wide that we want to sell. 

Another requirement is an option that expires quickly after earnings the underlying has to be offering weekly options. Basically we want the price to collapse to 1/2 (or less) of the credit price we get when opening the trade very soon after the results are published.

Mostly, this works for the underlyings we choose. We live on the west coast and don't even get up with the opening of the market at 6:30 PST, instead sleeping in for almost another hour when we get up and look at the Tastyworks  phone app and typically see two or three (or four or six!) of these:

... although debits, since we are closing credit spreads ...

Finally, we've mostly avoided backtesting the past few years as we have enough experience to just test along as we're going, for example on the earnings trades that we're doing that are peforming so well. But we've gotten this friend and fellow trader recommending this backtesting strategy tool Trade Machine Pro that we may try this coming week and we'll report back then.

Thanks and happy trading to you!

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!

Spring in sight, as well as a fine trading week (+ 5.7%)

We had a dusting more snow this past week, but it's over now according to weather guru Cliff Mass ... For me it looks like this going forward:

I had an insight on my earnings trades up to the beginning of this week: I was trading the 0.08 delta short strikes ... mostly! I was moving to the 0.10 delta when there were 0.00 prices at 0.08 ... So I STOPPED DOING THIS! Clearly, the closer to the money the lower chance of winning ...

So this past week I was more careful: I traded just the 0.08 with only occasionally hitting 0.09 ... and I won 12 of 12.

Target (TGT) was the smallest winner for me, just because I goofed and didn't set the closing order price at 1/2 the credit (I made 6 cents rather than the 13 cents I should have) but otherwise the only slight weirdness was with SSYS. This was a short strangle:

I was short the 22 put and the 33 call ... and see the flirting around with $22.95 and slightly below on Thursday? This trade was showing a loss at this point, but since it was still well away from the short strike and only one day until it expired I figured it would come in ... and it worked! The price recovered early Friday and I got out for my expected 50 percent credit!

Sosnoff and company were whining about Costco earnings today ... but then they like to sell the .16 delta ... at 0.08 it was no problem and I made full profit!

Up this coming week: the Fabulous NDX trade on Thursday, otherwise only 9 earnings trades (all I can find with enough profit at the 0.08 delta to be worthwhile ...)

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!