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!

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 ...

NDS mystery solved: new ticker symbol XQO

For some reason, the NDX a.m. settlement value, ticker symbol NDS, hadn't been updated since December .. what was happening?

I received an update from the Tastyworks tradedesk on this: CBOE is no longer involved with NDX, it's strictly Nasdaq, and they've given the settlement value a new ticker symbol:

XQO

Good to know ... it's value from last Friday was just far enough inside the short NDX strike (7075) to pretty much eat up my entire profit ... I got a $4.85 credit (i.e. $485), and since the XQO closing value was 7079.35, that takes up $435 of my potential profit ... leaving me with exactly $50.

Better than last month, but not what I was visualizing.

However, back to our new friend the earnings trades ... we'll have to see if 17 in a row is an outlier  or typical before we can figure out how profitable this will be over time ...

More this weekend ...

A nearly perfect week (up 10.7%!) after switching to 0.08 delta earnings trades

I put on 17 earnings trades this past week without a loss!

The underlyings:

• NVDA
• PXD
• CTL
• EQIX
• NTAP
• YELP
• CSCO
• BFAM
• TEVA
• OXY
• AKAM
• ATVI
• TRIP
• UA
• RE
• SHOP
• MOH

There were almost all at the 0.08 short delta, with a few at the 0.10 delta when there was no bid at the .08 delta.

I had said previously I wasn't interested in doing anything herculean to "scratch" an undefined trade gone wrong, and that's still true. But I did start putting on undefined risk trades in lower priced ($35 or less) underlyings where the margin per contract is around $300. This I could afford to lose without doing anything but closing out and going on to the next one.

I did trade an Iron Condor (i.e. defined risk) on NVDA, which was quite volatile (therefore paid pretty well even for a defined risk trade, around 10% ... of which we took half, so just over 5% on an overnight trade: not bad!

Overall this plus the NDX trade, discussed momentarily ... gave us an up 10.7% week on the main account we were trading this strategy.

As for NDX ... I made the change I discussed a few weeks ago, putting this on closer to 1pm PST close of trading instead of the 9:45 a.m. PST I had been using.

Unfortunately, this made only about 1/4 of the profit that it would have if expiring worthless ... NDX was going higher Friday morning and closed I guess around 7078 where my short strike was 7075. This was the only glitch in an otherwise perfect week.

I say "I guess" because CBOE or CME or whoever's in charge of it has apparently stopped publishing NDS, the daily settlement value that the NDX a.m. settlement is based on. Tastyworks certainly has it, though they don't publish it on their UI.

This is just a minor aggravation ... what  I really enjoy about earnings trades is the fact that they're OVER overnight. I don't typically get up at 6:30 when the market opens, but when I do get up and look at my phone and see the Tastyworks app has informed me that I got 6 fills on the 6 (closing) trades I had on, well wahoo!