It was another solid week of trading and for the 2nd week in a row, Monday's open brought nice gains on directional option positions put on for stocks which exceeded the expected move after earnings the prior week. As for next Monday, I went out long the TSLA 200 puts, so stay tuned to see how that one turns out.
What I have observed is that the price movements of stocks are contained by the options market itself. Prices for stocks reporting earnings have a very strong tendency to remain within the expected move for the week - presumably because the market makers themselves sell options outside the expected move and defend these levels with their own trading in the underlying. Once a new week comes, that constraint is removed and prices are free to run to the next level of support or resistance.
This past week was a parade of earnings reports. Recall that I am selling call credit spreads above the expected upside move and selling put credit spreads below the downside expected move. The desired outcome is that the stock remains within the expected move and I get to collect the premium.
Last week I said the stock stays within the expected move 80% of the time. Is that just a guess and if so how does this play out with actual experience? Let's look at a table of my trades to find out.
| Position | Credit | Resolution | P/L |
| NUS 80/82 91/93 | 0.80 | Closed put side at a debit of 1.88, short of max loss | -1.08 |
| APC 95/97 102/104 | 0.80 | Max profit | 0.80 |
| TRIP 72.5/75 89/91 | 0.80 | Max profit | 0.80 |
| FSLR 61/63 72/74 | 0.80 | Closed put side for a debit of 0.50 | 0.30 |
| PCLN 1070/1075 1195/1197.5 | 1.60 | Closed put side for a debit of 0.35 | 1.25 |
| TSLA 177.5/180 220/220.5 | 1.06 | Closed put side for a debit of 1.07 | -0.01 |
| Totals | 5.60 | 2.06 |
The bottom line is that I put on a total of 12 spreads in 6 stocks and 5 of the 6 stocks closed within the expected move. For the spreads which threatened to close in the money, I was still able to close them out at a profit except in the case of TSLA which was a small loss. In retrospect, had I done nothing into expiration, 5 of the 6 stocks would have closed within the move taking my positions to a max profit.
For most of the positions, I did small size - 2 contracts on each side. The exception was PCLN where there was so much premium I did 5 contracts. I took the largest profit on that trade and all told, I made some about 7.5 points or about $750 which is not bad for a part-time effort.
Looking at each position in terms of the expected move, here's what we have.
| Stock | Market Maker Move | Percent of Underlying |
| NUS | +/- 3.9 | 4.5% |
| APC | +/- 2.8 | 2.8% |
| TRIP | +/- 7.04 | 8.3% |
| FSLR | +/- 4.19 | 6.7% |
| PCLN | +/- 58.35 | 5.1% |
| TSLA | +/- 18.04 | 9.02% |
PCLN was the largest expected move in points, but at only 5% of the underlying, TSLA wins out with an expected move almost 10% of the price of the underlying.
Enjoy your weekend.
No comments:
Post a Comment