[Teddi Knight]

Here is my chart for execution of the above trade.

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[Teddi Knight]

Good discussion in this thread.

I like to do earnings plays similar to this. As a Matter of fact I have one on in YUM right now. I have a few reasons to defend why I believe this is sensible investing and not gambling.

Keep in mind that this is just one strategy I use when appropriate. No one strategy is perfect for any investor. I feel fairly confident investing this way given the account size$$$, my personal investing rules, and my comfort with different option repair strategies.

YUM trade for reference. For this I did an Iron Condor to define risk + lower costs basis instead of a strangle.

YUM – $73.75
2/4/15
STO Feb20 86/79 calls + 68/60 puts
qty 2 : avg price(credit) $ 0.81 (1 @ .73 1 @ .90)

I use some of Rishi’s criteria for this strategy, and I believe the first is the most important :

The criteria that I use are:
1. Defendable stocks
…

For me a defendable stock is basically a Teddi Stock. Strong, good trading range, weekly options, etc. Great example: Yum!

To add to this, I have done much research in Teddi’s rescue/repair strategies and feel confident defending positions.

By using trustworthy stocks and knowing how to repair I can confidently plan for a majority of scenarios.

Rishi’s other valid criteria point

The criteria that I use are:
3. Playing volatility crush…

The volatility crush that occurs after earnings is a great card to help stack my odds up.

Today I notice that YUM is posting earnings after hours. The premiums are looking inflated and I like the level YUM is trading at so I look to sell a put spread (smaller account otherwise NP). Selling the 68/60 gets $.53 on $800 of margin. I know earnings can make for wild swings, but I trust YUM and feel confident in rolling or adding to the trade if it goes against me.

Now after I have sold my put spread I peak over at the calls and see they have very inflated premium as well. I have $800 of unused margin, why not sell a way out of the money call spread to collect a little more income? In this case the 79/86 call spread for additional $0.37

We are in a defendable stock and we have the tools/know how to defend. The stock is the main focus of this strategy.

Strikes are carefully picked on a TA basis as usual using indicators/strategies such as 200 EMA, bollinger bands, weekly wanderer, etc.

Thus, my earnings iron condor is born. Work with a company I like and trust and can see a good trading range. Don’t force it as my sole form of income, but as another trusted high probability, small gain prem. selling strategy.

My goal is to buy back the entire contract tomorrow for half or less of the original sale. If YUM goes against either short strike then I will roll out further and/or add to the position (easier with low initial cost basis) .

I agree Teddi that this strategy can be hit or miss if not implemented right. If an investor can choose reliable stocks , have plans/strategies in place to defend, pick safe strikes, and implement at the proper times then I think this can be a successful investing strategy. I personally find the odds to be stacked in my favor when investing this way.

I attached a picture of YUM chart with the weekly wanderer setup.

— Patrick + Richard

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[Teddi Knight]

In the paranoid but lucky dept, I closed my GILD 95s a day before earnings.

In the plain lucky category I held my DIS 88s through earnings and closed today for .05. In the missed opportunity category, would that I had sold 5 contracts instead of 3.

In the insanely stupid “methinks I shot the Albatross” Titanic category, I thought SDRL 23 puts were a good risk a few days before it a) eliminated the dividend, and b) the price of oil dropped by 50%. Currently a stuck holder of a 1000 shares writing 10 puts and 13 calls…to dig out a little at a time!

[Teddi Knight]

I’ve sold DAL puts since last summer. It’s been a very lucrative put target for me. It is one of the best run airlines and is very cheap. The forward PE is just above 8 and the PEG is 0.4. The recent plunge due to a slight rise in oil prices makes little sense. I’m betting it will recover when people come to their senses.

There is a lot of support at the 45 level. I hold the Feb 45s and the Feb 27 (W) 46.5s.

[Teddi Knight]

I sold March 57.5 puts today on the huge down draft. 58 is the 200 DMA.

This is a very stable, strong stock with a big dividend and a huge institutional following. I’m betting it will recover to 60 and above within a couple of weeks.

[Teddi Knight]

KO and the market look weak to me so I rolled my 5 x 2/13 42’s today to 5 x 3/6 41s at a net debit of -0.14. Trying to finesse possible earnings/ outlook disappointments, and set up for expiration or assignment ahead of ex dividend date. I will add 5 addtl contracts at 39/40 on further weakness to offset the debit on the roll. Would be happy with assignment and dividends at 39-41 strikes and switch to covered calls.

[Teddi Knight]

1/9 STO 5 Feb 20 87.5 puts @ 1.10
1/30 STO 5 Mar20 82.5 puts @ 1.00
2/4 BTC 5 Feb 20 87.5 puts @-1.55

Although the 82.5 position offsets the loss closing the 87.5 puts, I am planning to sell addtl puts below 82.5 in any pull back below 85.

[Teddi Knight]

There’s quite a bit of bad news out on MRK. They lost ‘breakthrough’ status on a Hep C drug (whatever that is), they had a bad earnings report, there’s more competition from Europe and the dollar is strong (which is bad for MRK).

Looks like it has more to fall to me, but somewhere there will be a bottom.
To quote Monty Python: Always look on the bright side of life.

[Teddi Knight]

STO Feb20 90 PUT for 0.83 @10:14 a.m. I will write up more on how I executed my plan.

[Teddi Knight]

Hi Amy,

Happy to see you doing so well in TWTR :)

I have been paper trading it quite a bit lately using Teddi’s Weekly Wanderer Strategy and it has been performing pretty darn well.

The strategy says for selling put credit spreads and call credit spreads outside of a moving average envelope (which I basically treat like a Bollinger Band). Now, I only do the put spreads since I am not a huge fan of selling call spreads other than around earnings.

Here is a chart of the areas I have sold spreads using the strategy:

Like you said, TWTR posts earnings tomorrow and the premiums in the options are VERY juicy at the moment :)

I will probably look to put on a Feb20 34 / ~26 put spread for ~.75 if it will pull back and fill before earnings.

I might also put on a call credit spread and turn it into an Iron Condor earnings play (one of my fav strategies). At that point I would sell something like the Feb20 49/55 call spread for ~$.40 . I agree with you about TWTR having a bullish news sentiment and will stay safer on the call spread.

Put spread only : $75 on $800 of capital/max risk
IC (earnings) put spread + call spread : $115 on $800 of capital/max risk

Depending on the price movement I would likely buy/roll the call spread back right away after earnings as volatility(premiums) should decrease. The put spread I will handle more according the wanderer strategy unless I can close for super cheap.

Anyways, that’s my 2 cents on TWTR. Thanks for reading and sharing all your insights.

– Patrick

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[Teddi Knight]

Personally, I find that when a financial item has made the news — on CNBC and especially CNN or the networks — that news is so old that the market is almost surely going the other way.

Sort of a more polite way of re-phrasing Baron Rothschild (who said, “Buy when there’s blood in the streets — even if it is your blood.”)

[Teddi Knight]

I did OK with LUV during Jan. but got out last week. The airlines are very sensitive to the price of oil and I found myself spending a lot of worry because of the volatility.
That said, the chart on DAL is beginning to improve as oil drops.

Southern Yankee

[Teddi Knight]

pabloindallas…Great! I also got a fill at .35 for the 85 strike.

[Teddi Knight]

Cool…what premium are you trying to get for the 87.5 P?

[Teddi Knight]

I have an order in for the STO GILD Feb20 $85 P @ .35 — We’ll see what happens. I think 85 is strong support.

[Teddi Knight]

Teddi when will the site get updated with your recent trades?

[Teddi Knight]

On Tuesday up until 12 EST, the intraday pattern appeared consistent with a move either up or down. The price appeared to be settling with an erosion of intraday highs while the market waited for more buyers.

Confirmation in the price action up didn’t appear until after the pullbacks. Buying either the first or second pullback would be based on your reasoning that whatever was motivating buyers would again motivate buyers before the price falls below your stop loss.

For example, investors may have been waiting for a signal like increased demand for oil.

[Teddi Knight]

FWIW I closed my 95 puts on 2/2 at 0.31 ahead of earnings.

I will wait for the dust to settle after tonight’s earnings report and look for an opportunity to re-enter.

[Teddi Knight]

02/03/2015

I did not do any paper trades today on the market direction. I wanted to buy on a pullback, but I did not get a confident signal(like divergence) to enter. Oh well nice move missed.

The move reached very close to 200 day MA on the way down. There is a confluence of support as shown in the chart attached. $2000 level has been very strong and price has come back to it even after breaking. Price action bars are indicating strength returning to the price. The key level to watch for me is $2060. If it taken out on decent volume and price action, then we are go. For me next few days might give us some clues which way this will resolve, most likely being up based on what I see today.

I would appreciate any thoughts and comments.

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[Teddi Knight]

GILD

Why this stock?
Drug company with decent valuation and pipeline. It can have wild swings so need to be careful. This is a very speculative trade for me.

Trade Plan:

I can sell 2-3 puts on this stock and I have attached the support levels where I would sell the stock. I do not want to own the stock so plan is to sell far OTM and roll before they become ITM. If it falls deep ITM then I will use my rest of the puts to make my way out. I will only employ them based on chart signals.

I have attached the chart post earnings and we can see the $100-$101 as the base. Stock has been in a strong uptrend and is channelling now. If it breaks $90 then it will fall to the next level of $80(unlikely in my opinion unless the general market or IBB drops). It does not matter what I think I will trade according to what I see at that time.

I have attached the option chain I am targetting for tomorrow. I have set up theoretical price based on evenings base price of $100. Typically volatility can fall by 10% post earnings. So using this I have a guideline for what option prices might look like tomorrow morning. This is just theoretical price and I will base my limit price on the signals from the chart.

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[Teddi Knight]

Attaching more charts

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[Teddi Knight]

I really appreciate this advice. Pearls of wisdom
I agree this is not the type of trade an investor should do.

On another note, I always wanted to ask if our odds of success would be higher put selling with ETF’s only rather than with individual stocks. ETF’s like QQQ, DIA, IWM, EFA, EEM and SPY are less likely to go to 0 than individual stocks like an AAPL or PG. I would like to hear your thoughts on that.

[Teddi Knight]

After the Monday morning sell-off, it would have been reasonable to adjust stops on SDOW to the range of 22.70 to 22.40 to capture profits and limit risk. This tactic would apply to someone trading the market swings based on a daily outlook.

If you determine late that reducing your position is prudent you can close immediately or you can set a loose stop but close on the next pullback or brief reversal in your favor (which may or may not happen before the price hits your stop).

[Teddi Knight]

That’s the inverted logic of this market. I don’t remember any airline up sharply in price because of the sharp decline in oil… but let oil go up by 10% and… airlines should go down.

[Teddi Knight]

Thanks Teddi for the great review. Unfortunately I had followed in your footsteps on 12/16 and did a Jan15 92.5C/105C credit spread. Instead of closing it when the stock rose like you did with your 92.5C, I bought the stock and turned the short calls into a covered calls. Not a great move since the stock price immediately started dropping, and I rolled the calls down a couple of times to March 85C for break even. I decided I would not roll any lower and keep the stock if it drops below 85.

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