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  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Yes, but I didn't take the another trade. In my original article I said that "I’m planning to place this trade next week." Then in the comments section I said on Jan. 3: "anyone who is intending to take the trade - since GOOG moved, please move the strikes 10 points up." and then: "I'm in GOOG 610/620/690/700 at $4.70." So there is no point to talk about the original trade.

    I completely agree that the IV increase and the stock move save the trade, but this is how it works with those trades. You can have the stock price and IV unchanged for few days and the trade is down 10%, and then both jump. But if you are a bit lucky and the stock has a decent move combined with IV increase 1-2 days after you enter the trade, the gains could be significant.

    I enjoy our discussion. You have very valid points, and not every trade is going to work. But if you don't like it, you can cut the loss at any time and set the loss level which is comfortable for you - the only threat to this trade is the negative theta, and its impact is gradual. With many other option plays, this is not possible.
    Jan 9, 2012. 12:54 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    fermin, once again you are not reading my comments:

    "I didn't trade the original strikes - when GOOG jumped to $660, I recommended to go with 610/620/690/700 in the comments section of my original article." Check the original article comments section.

    With those strikes:
    GOOG @ 627.58
    Jan 620 put @ 15.75
    Jan 610 put @ 11.55 = 4.20

    Jan 690 Call @ 2.55
    Jan 700 Call @ 1.77 = 0.78

    So the mid is 4.98 now.

    If GOOG reaches $620 today, I will probably close the trade and re-enter with new strikes.
    Jan 9, 2012. 12:07 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Actually it's around 4.70 already. I didn't trade the original strikes - when GOOG jumped to $660, I recommended to go with 610/620/690/700 in the comments section of my original article.
    Jan 9, 2012. 11:16 AM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    fernin,

    You don't necessariliy need vega to be larger than theta. In fact, it rarely happens. vega just gives you the rate of increase for every point of IV increase. So 2 point of IV increase already overcome the theta.

    IV jumped today 5 points and it definetily helps the trade, along with the stock decline. 70 points apart had 25 deltas of the long strikes a week ago when the trade was placed. It has its pros and cons - I will discuss it in my next article. But if the stock moves, lower deltas are better for the trade.
    Jan 9, 2012. 09:49 AM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    I'm assuming that GOOG will report on Jan. 19 (last Thursday before January expiration). There was only time when they reported after the monthly expiration. If this happens again, this trade will not look pretty.. On a side note, as far as I know there are no weeklies on a week of standard monthly expiration.

    Assuming the report in January, the closest expiration options always benefit the most. February options might have a minor IV increase, but much less than January.

    Your calculation of deltas is correct. You can subsctruct the deltas or just do the trade with similar deltas. It will never be exactly zero, but should be close enough not to be directional.

    OTM are more conservative - less negative theta, but also benefit less in case of decent move. I will have a separate article comparing several options.
    Jan 9, 2012. 09:32 AM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    fermin, please read my comment carefully:

    "In July 2011 cycle, I entered 19 days before expiration, the stock moved 7% in the first 6 days and I made 180%. But it was a strangle with deltas of 15."

    The 7% move and 180% gain was in July 2011, not the January 2012 trade.
    Jan 8, 2012. 08:21 PM | Likes Like |Link to Comment
  • Take Flight With An Iron Condor For Significant Profits [View article]
    berloe, after the trade is filled, you break it into put spread and call spread. Then you place an order to close them. How to do it exactly depends on your broker. It's no different than closing a debit spread, but instead of selling the spread, you buy it back.
    Jan 8, 2012. 05:11 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Kevin,

    Average gain of 10% includes the losers. Sorry for the confusion. Average winner is around 25-30% and average loser around 10-15%. Losses of 20-30% are very rare. Looking at my records, I can see that they happened when I was holding for more than a week (strangle, not reverse condor). I reduced the holding time for strangles to 3-6 days and since then the loss rarely exceeds 10-15%. With reverse condor, I can hold a bit longer since the negative theta is smaller, but also no more than 7-10 days. Again, GOOG timing was an exception, probably not a successful one..

    I'm not trying to guess which trade will work better. I allocate same dollar amount for all trades and this amount determines the number of contracts. I know that typically stocks like AAPL and GOOG will be better, but I had some surprising results. I had 27% gain with FDX, 20% with AZO, 28% with GES, 32% with JDSU, 60% with HOG and 36% with NTAP - those are examples from the last cycle only. I place the 50% limit order for the cases that the stock gaps. Sometimes I see very strong move combined with high gamma so I let it run - this way I got 103% on FSLR. In August crash I got four doubles in a row on CRM, HPQ, DIS and SINA.

    What I like with those trades is predictability. I can allocate similar amounts for each trade and know my approximate maximum loss. 10% might not sound like much, but if you know that your maximum loss usually doesn't exceed 20-25%, you can allocate 8-10% of the account to those trades. I cannot do it if I hold through earnings. With 15 trades per month on average, your account will grow by 12-15% per month.

    I hope this clarifies things a bit - let me know if I missed something.
    Jan 8, 2012. 05:08 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Kevin, thanks for your questions. Let me address them.

    IV ALWAYS rises before earnings. The only question is by how much and if it is enough to offset the theta. In some cases it is not enough. However, most of my trades are placed about 3-6 days before earnings. For most stocks, this would work just fine. If earnings are less than a week before expiration, I would reduce the holding period to 2-3 days. GOOG was an exception based on the fact that in previous cycles the IV increase started 15-17 days before earnings. It didn't happen this time.

    If placed 3-6 days before earnings, worst case scenario the trade can lose 25-30%. This rarely happens. Typical loss is around 10-15%, in many cases even less. But the trader can control this loss. There is no danger of gap in the strangle price since it is negatively impacted by theta only and theta effect is gradual.

    Also don't forget that if the stock moves, it will also contribute to the gains. Sometimes with high gamma you can get 50-100% with just 5-7% move.

    I don't see how high priced stocks can cause more significant losses than low priced stocks. I don't allocate fixed number of contracts, I go by dollar allocation. If I decide to allocate say $1,000 per trade, I might buy 2 contracts of GOOG or 5 contracts of $2 spread.

    The trade doesn't require constant monitoring at all. I usually place a limit order to sell at 50% gain and check it 1-2 times a day. If the markets are calm and I reach 25-30% profit, I would usually sell.

    Since starting using this strategy 6 months ago I made about 100 trades. Average return is about 10% with ~60% winning ratio.
    Jan 8, 2012. 12:44 PM | Likes Like |Link to Comment
  • An Ingenious Way To Profit From JPMorgan's Earnings Prior To Their Release [View article]
    Hi Calin,

    February will definitely have less theta, but you probably cannot expect the IV of February to rise before earnings. This would be more conservative trade but it would be not earnings trade.
    Jan 8, 2012. 12:08 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Fermin,

    You have very good points and I can see that you have excellent knowledge about options.

    My comments:
    1. I mentioned the negative theta in my original article - it was 2.4%. We are closer to expiration now so it is obviously higher now - 4.5% ($19). The vega is currently $12 or 2.8%.
    2. I provided the expiration chart to make my point about holding through earnings. For selling early, the daily chart is obviously more important.
    3. In my previous comments I mentioned that I obviously was too early this time. In July 2011 cycle, I entered 19 days before expiration, the stock moved 7% in the first 6 days and I made 180%. But it was a strangle with deltas of 15. I'm more conservative now, but even for the reverse condor, if the stock moves, you can expect 25-30%.
    4. So far the stock didn't move and the IV is even slightly down, but the trade is down only 10%. You cannot win in all trades, but overall, it is a very solid strategy.

    You can visit the discussion on my original article on this strategy - http://seekingalpha.co....
    Jan 8, 2012. 12:00 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Yes, negative theta is definitely a risk, but the idea is that IV increase should neutralize the negative theta.
    Jan 8, 2012. 12:06 AM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Thanks Joe for your kind words.

    Gamma is also important - it is increasing closer to expiration and any change in the stock price will cause larger gains for option owners.
    Jan 7, 2012. 04:22 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    I checked this option, but the results are not consistent. Many times the IV in the morning is already high and doesn't increase anymore. Plus the chance for the stock to move is much smaller in one day. I see those trades as combination of vega play and gamma play. I found out that 3-5 days is usually an optimal timeframe.
    Jan 7, 2012. 04:20 PM | Likes Like |Link to Comment
  • Google Earnings Trade: To Hold Or Not To Hold [View article]
    Yes. This is what I'm going to do.
    Jan 7, 2012. 04:18 PM | Likes Like |Link to Comment
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