Yesterday, I wrote (click here) about MFLX and CELL that I played for earning using backspread strategy. Both are looking promising and I expect both of those to open significantly higher. Interesting thing is about MFLX specially which is around 1 yr low. The resistances are around $20 and $24. Depending upon how it opens, I might play a directional trade i.e. bull put strategy as well.
Cheers and profitable trading,
OptionPundit
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Hi,
I just found your site. Very informative. I play, like you, credit ratio spreads as earnings plays. Congrats on CELL and MFLX. Could you please let me know which ones you played and what is your profit?
I am looking at AKAM for tonight, but will do different months:
– Buy 20 March 55 puts
– Sell 10 Feb 60 puts
Obviously this is with a bearish bias. I think the stock is overvalued here and might drop even with great earnings, but want ot protect myself in case of upside.
Let me know what you think. Risk/reward looking real good. I have noticed from your charts that you use Thinkorswim as well. I really like their “analyze” tab, but I have noticed that sometimes their profits projections are not accurate in “risk profile”. Especially around earnings time when IV changes a lot. Do you have the same issue?
I would especially be curious to know if the profits you are going to make on CELL and MFLX are in line with what they projected yesterday.
Thank you,
Optrader
HI OPTrader,
Thanks for visiting OptionPundit. Regarding the risk/reward curve, it keep adjusting due to changes in the volatility. I generally look for approximation.
As you might have also noticed that if AKAM goes higher you are making money till 66 or so, on the other hand if it drops , you will make money only below $52, so between 52 and 57 you are not making money? you maximum loss seems to be in the range of $30-40 with rewards about 3 times? am I interpreting your trade correctly?
Profitable trading,
OptionPundit
I like it…when I compare this with Backspread, this seems to have better risk/reward ratio. I am going to experiment via paper trade.
Profitable trading,
OptionPundit
Rewards are much more than 3X, if stock drops big. Yes, you are right, you make money from $60 to $66. I like backspreads with different months because you keep some premium on your long puts while the short puts lose fast.
Will let you know tomorrow how the trade went. So far, stock is unchanged, so this is not good.
Let me share a quick obeservation from the AFFX and AKAM play using the above approach:
AFFX : -1 Feb 27.5 (IV 63.74%)/+2 Mar 25 (IV 47.8%) prior to earning, after earning annoucments, AAFX : -1 Feb 27.5 (IV 37.84%)/+2 Mar 25 (IV 37.5%), Underlying moved up by $1.8 dollars. Though I gained $24 on $250 investment i.e. 9.6%, but at some point it seemed that trade is not going to make money.
AKAM : -1 Feb 60 (IV 60.03%)/+2 Mar 55 (IV 44.32%) prior to earning, after earning annoucments, AKAM : -1 Feb 60 (IV 36.15%%)/+2 Mar 55 (IV 35.9%), Underlying moved down by $1 dollars. Currently this trade is losing about $60 on $530 investment i.e. 11%, the trade is still open.
My lessons from the this trade are:
Back month’s IV also drops significantly though less than front month, this also needs to be factored when running a risk/reward analysis.
What are yours?
Profitable trading, OptionPundit
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