Trade Findings and Adjustments 04-29-2021
I was going to redo the last Thursday’s Armstrong PDF but we need to talk about earnings.
I’ve built HI completely around earnings & the collar trade
When stocks go through an earnings event what is the possible movement on average?=1 standard deviation = 16.66% to 18% movement up or down
We entered a full collar trade on FB the last twenty minutes that the market was open yesterday?
Volatility crush or I over paid for the long put protection
BTO FB @ an average price of $308.32
BTO long puts May monthly $310 strike price for $11.68
STO short calls Jun monthly $350 strike for $2.89
Overall cost basis = 308.32+11.68-2.89 = $317.11
Overall risk in trade is 310 right to sell – 317.11= $7.11 *300 shares $2,133 on a 95K investment or 2.24% Risk on Investment
Maximum Reward 350 – 317.11 = 32.89 * 300 shares $9867 / 95K = 10.38% two month ROI
What is the biggest problem with trading an earnings event?= The market has to figure out what the earnings/guidance means
You NEVER adjust your trade the day after earnings. Sometimes it’s prudent to wait a week or more