Share Button

Earnings Trade

On 13.11.2017, we sold a straddle on Nordson Corporation (NASDAQ: NDSN). NDSN earnings announcement is on November 14, 2017 market close. Some people avoid earnings trades and some people avoid naked strategies due to the risk that comes with it. But in my own personal opinion if the price is right, its as good and rewarding (sometimes even more) as any trade.

The Strategy

On 13.12.2017 before market close we sold an Iron Butterfly with the following order seen on the trading panel (see first pic) and got filled for 7.26 (726 USD credit received). Related fees were 0.51 USD.

Main Points of using Iron Butterfly for earnings:

  1. You are banking on receiving much more credit than usual from selling high IV options that will lose value after earnings announcement. This is a strategy that allows you much margin of error for earnings because of the fat credit should the price decides to whip here or there.
  2. We placed wide hedges (15 USD for each side) just in case the price totally moves against us. When the price runs significantly  in off your strikes, we are still somehow covered. This trade allows us a 5% up and 5% downmove.

Your main goal here is to buy the combo back cheaper after IV crushes to bank a net profit.

The Risk

The display shows that our broker withholds margin of 1,273 USD. They based it on their system´s assumption of deducting

(difference of strikes * 100) – minimum net credit recieved

the correct max risk for the credit we received here is clearly 1,500 – 726 – 0.51 = 774.51 USD resulting from max risk minus net credit received.

Let´s see what tomorrow holds.. 🙂

For details, see also Nordson Corporation Investor Relations Page.

The Buyback

Nordson Corporation (NASDAQ: NDSN) posted EPS 0.05 USD beyond expectation and rallied way beyond our profit zone to 140 USD after market trading. Since the price was sustained after 14.12.2017 opening bell and I cannot defend a bearish position that would support an alternative of mine rolling the call combo, buying back the call combo and the short put at the best price I can bargain was the option left. Ten past opening bell: bought the call combo back for 1,322.19 (1,320 + 2.19 fees) and the Short Put for 6.09 USD (5 + 1.09).

Net Loss for this trade is 603,79 USD (Net buyback – Net credit received upfront.) Option Chain snapshot shortly after trade got filled is as follows:

Our Watchlist

Our watchlist is programmed to reflect the relative IV of options. This automates the task of detecting option pricing advantages or disadvantages due to relative volatility. – thus allowing us to focus more on the creative part of the task – planning and strategics on trades that come on to our radar with the help of our watchlist. Should you be interested to use our watchlist, you can try it out for a month to month basis for 1,99 USD – with no long term payment obligation – this means that the subscription is cancelable any month you decide you don`t want to use the watchlist anymore. Here´s a screenshot of the watchlist as of September 25, 2017 that helped me pick out Nike and other high promising option trades.

Additional Risk Disclosure
Trading as is already exposes you to a material amount of risk and can cause material losses, even exceeding your initial investment. In addition, trading with margin and trading on or before earnings announcements increases that risk even more.

More interesting news

More trades on this instrument

Here you can watch more live trades on the instrument.
Hint: More live trades for this instrument will only appear, if we have already entered more than one trade in our trading journal.

No posts could be found that matched the specified criteria.

If applicable, click here to see all live trades on this instrument..

Share Button

Leave a Reply