How to ACTUALLY play earnings

Sharing is Caring!

by HeinekenCoC

NEVER BUY NAKED OPTIONS ON EARNINGS PLAYS. YOU ARE ALMOST ALWAYS BETTER OFF BUYING OTM DEBIT SPREADS.

For example, lets take Tesla. I’m a bear on it and expect a 5-10% drawdown by next week. I can buy 10/22 puts. But the ATM puts go for 2000 a pop. Lets say I buy one and Tesla tanks $50 by Friday, closing at 815. I only make 3k on that trade.

Now lets say I bought five dollar wide debit spreads at the 825-820 mark for that same $2000 in premium. They go for $93 a pop. If TSLA drops to 820 I make 407 dollars PER spread.

Divide 2000/93 and you get 21.5 which means you can buy 21 spreads. If TSLA closes at 815, you go beyond your lower 820 strike and collect the full five dollar premium between both strikes. Instead of making 3k, you make $8200 if TSLA closes below 820 on expiry. In order to make the same amount of money from a naked option, TSLA would have to move another $50 by Friday for the same return. It’s retarded.

See also  S&P 500 REAL Earnings Yield At -2.33% While REAL Wage Growth At -1.43% (REAL 30Y Mortgage Rate At -3.11%) “Weird, Wacky Stuff!”

They also progressively get juicier the lower you go, but don’t go crazy because the options market is efficiently priced.

People don’t realize how much money you can make on this shit and how superior it is to naked options during earnings.

You are essentially selling an option against your long option which sells back premium and reduces your volatility and theta exposure A LOT. This is CRUCIAL during earnings.

I chose TSLA because it has a very big skew to the put side and the delta of the 820 strike was .25 when I bought (meaning the options market is giving it a 25% probability of being ITM by expiry. I’m getting 6-1 returns and have 1 in 4 odds so it’s a +EV play.

See also  Inflationary Hubris, the Fed & Gold: Can Inflation Actually Be Good for Everyday Americans?

Positions:

40x TSLA 825/820 debit put spreads expiring 10/29 that cost me 3k and will net me 20k (17k + 3k in premium that I paid) on expiry if TSLA closes below $820.

TSLA fanboys stay out of the comments. I’m just here to help yall not lose everything even if you guys ARE right tomorrow.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

355 views

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.