... for a 3.55 credit.
Comments: Earnings announcement volatility contraction play.
I ordinarily put these on right before earnings, but will probably space it out, so am putting it on today. Earnings will be announced on Wednesday, 1/24, after market close.
Here, selling the 25 delta short option strikes and buying longs 10 strikes out from the shorts, resulting in 10 wide wings on which I've collected more than 1/3rd the width of the wings in credit, as well as a net delta setup that's about as delta neutral as you can get.
I'm using the next available monthly here so that I've got a little time to manage the setup in the event that that the move is bigger than the options market is anticipating here (around +/- 19 handles, which would be around 225 on the call side, 190 on the put, given current price). The basic notion here is that (a) TSLA IV contracts post-earnings; and (b) it stays within the expected move.
The Metrics: 3.55 credit on buying power effect of 6.45; 55.04% ROC at max; 27.52% at 50% max; delta/theta 1.00/8.02; 186.45/233.55 break evens. Since this is a defined risk setup, the BPE is the same regardless of whether you set it up in cash secured account like an IRA or on margin.
Comments: Earnings announcement volatility contraction play.
I ordinarily put these on right before earnings, but will probably space it out, so am putting it on today. Earnings will be announced on Wednesday, 1/24, after market close.
Here, selling the 25 delta short option strikes and buying longs 10 strikes out from the shorts, resulting in 10 wide wings on which I've collected more than 1/3rd the width of the wings in credit, as well as a net delta setup that's about as delta neutral as you can get.
I'm using the next available monthly here so that I've got a little time to manage the setup in the event that that the move is bigger than the options market is anticipating here (around +/- 19 handles, which would be around 225 on the call side, 190 on the put, given current price). The basic notion here is that (a) TSLA IV contracts post-earnings; and (b) it stays within the expected move.
The Metrics: 3.55 credit on buying power effect of 6.45; 55.04% ROC at max; 27.52% at 50% max; delta/theta 1.00/8.02; 186.45/233.55 break evens. Since this is a defined risk setup, the BPE is the same regardless of whether you set it up in cash secured account like an IRA or on margin.
Comment:
Now that I look at it, a better vol contraction play would be to sell premium in the Jan 26th expiry (84.0% IV) to take better advantage of any vol contraction. The expiry after that (Feb 2nd) is at 63.0%, after which subsequent expiries fall off to the 50's.
Trade active:
The NFLX setup broke through the call side; this one, through the put. Rolled the February 16th 230/240 short call vertical to 205/215 for a 1.18 credit, resulting in a Feb 16th 180/190/205/215. Total credits collected of 4.71. Will probably need to adjust further tomorrow with its delta/theta finishing the day at 12.25/2.69 (I prefer to keep it <1.0).
Break evens now at 185.29/209.71.
Break evens now at 185.29/209.71.
Trade active:
Now I remember why I don't do earnings very often .... . When they go wrong, there's a lot of massaging of the position.
Rolled down the Feb 16th -205C/180P to the -190C/170P for a 5.00 credit. Total credits collected of 9.71 with the setup now being almost an iron fly: 170/190/195/215 with 180.29/204.71 break evens.
Rolled down the Feb 16th -205C/180P to the -190C/170P for a 5.00 credit. Total credits collected of 9.71 with the setup now being almost an iron fly: 170/190/195/215 with 180.29/204.71 break evens.
Trade closed manually:
Closed for a 9.96 debit; .25 ($25) loser. Would rather take a small loss here than rolling out what amounts to a broken setup.