The War Drums are beating! Pre-Earnings Play in GOOGL

As of 12:35 PM central today, SPX is 2361  +6  and VIX is 13.52  +.65. That is unusual for VIX to increase on an up day, why is it happening?  Because there is unrest in the world and people want some insurance .  With the US bombing the Syrian Air Base last week, and the bombing of the Christian Churches in Egypt, people are a bit nervous. Throw in the fact that the SPX is up about 15% since November, and you can see why folk, especially fund Managers , would want some downside insurance with the VIX, and are willing to pay up. Any Trading Opportunities?  With this Friday a Holiday for the market, I am a little lighter in trades this week.

In GOOGL, here is  an pre-Earnings Calendar Play. Buy 1 April 28 Expiration  830 Call  and Sell 1  April 21 Expiration 830 Call . Total Debit $9.55 . I just bought this live at 12:59 pm central today with GOOGL trading at 827.79. Earnings will be the week of Monday April 24. The purpose of this Calendar is to put on a trade that shouldn’t have any Implied Volatility Risk. We are buying the long option at an Implied Volatility of around 22  and selling the short option at an Implied Volatility around 12. Why would anyone buy a high volatility and sell a low volatility? Because we are buying our long in an expiration that will be affected by earnings and we are selling are short Option in an Expiration that won’t be affected by Earnings. Net affect, the long options should stay at the current implied volatility levels or go higher and the short options implied volatility  won’t go up much and will start to decrease because they short options won’t be around to experience the wrath of earnings. As I said, I paid 9.55 Debit and would sell this out for around 10.30 credit, about 8% yield. My short expiration is in 11 days, I would like to be out of this trade by this Thursday if possible. If GOOGL goes against me, too far under 830 or too far above 8.30, and  the spread trades over $8.55, would probably get out.

Check out the big banner on regarding our 2 Day Chicago Seminar, Jun 15-16.

Dan Sheridan ~

Trading the Monthly Jobs Report

One monthly report that generally moves the stock market is the NFP or nonfarm payroll report that is issued the first Friday of every month. The report is issued at 8:30 am Eastern time 7:30 am central time before the market opens. When the market opens, often the market will make a hard move one way and then come back the other way over the first hour or so. This can make for an interesting speculative play using options. This is not normal non-directional income style options trading.

The way to play these moves with options is to wait for the initial move to move hard in one direction and then sell option verticals above or below that. Then whenever the market moves back the other direction you can close those option verticals that you sold profitably or continue with them if the market stabilizes. Often the market will move one way and then the other and continue that  way the rest of the day. For instance, if the market opens up you could sell call verticals in a broad-based index like SPX once it is moved up about 10 to 15 minutes, then watch for a market reversal to buy those back or you may be able to continue with a market reversal the rest of the day. Conversely if the market opens down  you could sell put verticals on SPX or a broad-based index and then when the market stabilizes or goes the other direction cover those verticals or maybe continue with them the rest of the day. This is often easier to do than buying a straddle, where you buy an at the money call and put the day before, because often times the volatility will come out of that straddle which will crush the profitability of the play.

There is also an income style trade that could possibly be set up using these moves. You would simply sell the vertical in the SPX calls or puts depending on which way the market opened and then when it went back the other way sell the other vertical and you should have a fairly broad structured iron condor. Of course, this is not without risk and this kind of move needs to be done small and practiced a lot on paper before doing it live. Whether you sold just the verticals or are creating an iron condor I would sell my shorts at a delta between 14 and 18 so that you are far enough away from the market and not too close.

Both of these can be done on  paper tomorrow when the jobs report  comes out.

Mark Fenton

Bullish Crude oil Butterfly

There are reasons fundamentally to be bullish crude oil in the current market. Summer driving season approaches and the oil supply glut has been diminished. If you share that point of view and wish to speculate with /CL, below is a trade you may find interesting.

May /CL trading around $50.60

Look to buy a call butterfly structured as below at a debit of around $2.30 ($2300 trade cost).

Buy one May 47 call
Sell two May 51 calls
Buy one May 55 call

Consider closing the trade if a profit of $230 is reached(10%).
Close the trade if loss reaches $200

Mark Fenton