NFLX Earnings Strategy: Directional Butterfly. Stock is around $393

Earnings in NFLX are after the close today. NFLX stock is down 7% from its highs of $423 on Jun 21, about 3 ½ weeks ago. The Projected price move for earnings on the TD Ameritrade Platform is around $30, projecting about a 7% potential move in the stock. The July 20 At the Money Straddle for this week is around $34, projecting a potential move of about 8.6% up or down. Bottom line , the projected moves are between roughly 7 and 8 ½ %. What range does that project for where NFLX could possibly be tomorrow in the AM when the stock opens? The answer using the current price of $393 is: $359 to $426. There is a high Probability tomorrow morning, NFLX will be somewhere between $359 and $426, up or down about 8 ½%. Now to today, what would I do? Do I know what will happen tomorrow? Of course I don’t know what will happen tomorrow, either do you. But the question to answer is this: Do I think NFLX will be between 359 and 426 or do I think it will be outside this range. Either answer is still going to make the strategy I pick a speculative play and I will be careful not to trade too large. If one thinks the range will be between 359 and 426, I would choose some type of range bound strategy like Iron Condors or Butterfly. If I think the range will be outside 359 and 426, I will pick a more speculative strategy like a Long Straddle or Strangle. A 3rd choice is to take a directional opinion up or down and use a strategy like a long vertical or directional Butterfly to express that directional opinion. I will choose a directional bullish Butterfly on the upside that would benefit from IV decreasing on the upside, a price increase that could help me, if move doesn’t go too far through my short strike, and if I’m wrong , it’s a cheap shot. Why am I going to take a bullish outlook? This is pure speculative and I am going for a home-run with a small amount of capital I have.

Dan Sheridan

Dan@SheridanMentoring.com

TSLA Bullish Trade

TSLA is  trading at 312  +3 for today. I’m looking for a cheap shot on the upside. 3 weeks ago, TSLA traded $373. Today it has bounced a little but is still trading 16% lower than it did 3 weeks ago. If I am looking for more of a bounce over the next 2 weeks, here is a trade in the July 20 Expiration , I did today.

Trade:  Buy 1  320 Call, Sell 2  330 Call, Buy 1  340 Call,  1.12  Debit. July 20 Expiration. Looking for TSLA to be between 317 and 345 over the next 7-8 days. This is an 11 Day trade. My profit Target is around 40% and look to get out of this trade in 7-9 Days. I paid 1.12 Debit and would like to sell it out for around 1.55 Credit. If TSLA trades under $300 in the next 7 Days, I probably would get out.

 

Dan Sheridan

dan@sheridanmentoring.com

 

What is a Cheap Way to get Long TSLA?

Monday,  Jul 2 of this week, TSLA traded  intraday at  364, it closed at $335. Today, Friday July 6, TSLA is trading at $308, down 15% or 56 points from Monday’s Highs! You can check the proposed reasons for this on the web or a multitude of places, so I won’t focus on the  Pundits opinions. What I will focus on is this: If I think TSLA will recover some of the 56 points it lost this week , maybe over the next 2-3 weeks, how can I get long? Better yet, how can I get long without getting my face ripped off if I’m wrong and TSLA goes down more? I have many choices to get long TSLA , but will focus on 3 popular ones. I can buy a long call or a long Vertical, 2 popular choices. Both have decent risk if I’m wrong. My third choice involves starting with a long vertical and then selling a short vertical against it where the short strike of both spreads is the same. What is this called? A  Butterfly Trade. This is much cheaper dollar wise than a long call or vertical. Can this Butterfly trade make as much money on the upside as a long call or long vertical? Usually not, but in some cases yes. I also would place this trade a bit out-of-the money on the call side if taking a Bullish stance. So going with an assumption we think TSLA can increase some over the next 2-3 weeks and recover some of the 56 points it has lost since Monday’s highs, here is the trade idea. TSLA is currently at  the 309 area.  I will use the Jul 27 Expiration, 21 Days out from now. I will Buy 1  Jul 27  325 Call, Sell  2 Jul 27  335 Calls, and Buy 1  Jul 27  345 Call for .80 Debit. My max Risk is the debit or $80. I would like the stock ideally to go near my short strike as we get closer to the Jul 27 Expiration, sort of the sweet spot. I placed my short strike at around a 30 Delta, why? A 30 Delta indicates that TSLA has about an 60% probability of touching my short strike between now and expiration. My Plan would be to hold the trade about half of the duration I am Trading . This is an 21 Day trade, so I would probably look to stay in this trade at the most, about 10-11 Days. My plan would be to make 50% of my total capital; expenditure. If I pay .80, would look to sell out at 1.20 credit. That’s my Cheap Bullish shot idea on an expensive stock like TSLA. Remember, this is a Speculative play on a Volatile stock and only would consider this trade if I had a bullish bias on TSLA over the next 3 weeks.

Dan Sheridan

dan@sheridanmentoring.com

Updates on Live Trades Yesterdays SheridanTV Show

July 5 Live  Trades from SOM  TV  Show

 

COST  Iron Condor.  Jul 20 Expiration.  S 1  215 C, B 1  220 C,  S 1  200 P,  B 1  195 P,  .99 Credit. With COST currently trading at 208  -1, the Iron Condor is trading at  .89. Nothing to do now.  Position Greeks at 208.23:  Deltas  -4,  Gamma  -3.47,  Theta  5.71,  Vega  -10.

 

TSLA  Bullish Butterfly. July 20 Expiration. B 1  320 C, S 2  325 C,  B 1  330 C,  .31 Debit. With TSLA at 307  -2 today, the spread is trading at around .30- 35 range , nothing to do right now.

 

Dan

dan@sheridanmentoring.com

Update on SPX Iron Condor from Monday

In the previous blog post I put on a SPX Iron Condor

I just took off Mondays High Octane short term Iron Condor for a 12% profit in 3 days. The trade was in the July 6 expiration.

Buy 1  JUL 6  2750 C, Sell 1  JUL 6  2745 Call,  Sell 1  JUL 6  2660 Put,  B 1  JUL 6  2655 Put.

I sold the Iron Condor Monday for 1.35 Credit, and bought it back today for .90 debit.

Dan Sheridan

dan@sheridanmentoring.com

 

HIGH OCTANE 4 DAY SPX IRON CONDOR

The below trade was discussed earlier today in a webinar with Ally Invest.

B 1  JUL 6  2750 C, S 1  JUL 6  2745 C,  S 1  JUL 6  2660 P,  B 1  JUL 6  2655 P,   1.35 Credit. Margin or Risk per 1 contract is $365. I have an order in now for 1.35 credit at 12:27 pm central with SPX at 2704  -14. Not filled yet. Mid Price Range is between 1.25 and 1.35. My Profit Target is 15 % of my Max Risk of 365 and My Max Risk is 20% of $365. Would do smaller size than an 18 Day or 45 Day Iron Condor. There is more price Risk as you get closer to Duration and this trade expires this Friday in 4 Days! The beginning Greeks are :  Deltas  -.76,  Gamma  -.15,  Theta 24,  Vega  -18.

 

Dan Sheridan

dan@sheridanmentoring.com

Why should Covered Writes be Illegal?

Now that I have your attention, why the  dramatic  title?  Let’s start with a discussion of what covered writes  are , then lets get into a discussion on a better alternative.

Covered Write example: Buy 100 shares XYZ at $90 and sell 1 August 95 Call at $1.

Your generally buying stock and selling  an out-of-the money call against the long stock. Why would someone do this versus just buying the stock? Extra Income. As long as the stock doesn’t go up too much over a designated duration, you can make money on the stock appreciating and also some additional  income from the call your selling , as long as the stock doesn’t appreciate past the short strike. What’s the problem with this trade? Cost! In a retirement account, you would have to put up the full value of the stock minus the premium of the short call. In this case, you would pay $9000 for 100 shares of stock minus the  $100 premium from the short call, or $8900. What is a reasonable monthly yield on this type of strategy? About 1%. Is that bad? It’s not horrible, but for the risk and capital you have to put up, there are better alternatives. Like what? Long Diagonals! Example: Buy 1 Feb 2019  75 Call for $18 and sell 1 August 95 Call at $1. Why is this better? Cheaper and better Yield! Why cheaper? The cost is the long option minus the short option or $17 in this example. Why better Yield? Substituting an In-the-Money call instead of Long Stock requires a much cheaper capital outlay. The yield on the Long Diagonal in this example  is $100 premium divided by $1800 or 5.5%. Yields are usually 8-10% monthly on Long Diagonals,  this self made example gives you a visual of the Long Diagonal, but understates the potential yield. The yield on the stock is much lower because your dividing the premium by the full value of $100 shares of stock. For most of you, how would I recommend practically learning this strategy? If you are doing this strategy in a particular stock, start with 1 Long Diagonal in a stock you are already doing covered writes, and this will give you a feel for this strategy. When you start this strategy, what duration should I do and what strike should I sell?  Usually I do 30 day options. If neutral on the stock, I sell an ATM call, If Bearish , I sell an ITM Call. If Bullish , I sell an OTM call. What stocks should I do Long Diagonals in?  Stocks I am Bullish on over the next 6-12 months.

 

Dan Sheridan

dan@sheridanmentoring.com

Trade Idea for today

With the VIX at 17+ today the following trade that is “short” volatility looks interesting to me in the July 6th expiration-

 

SPX around 2705 to 2110

Buy a call butterfly with these strikes-

Buy 1 July 6th 2650 call

Sell 2 2700 calls

Buy 1 2740 call

 

I will try to execute trade for a debit around $18.00 per contract.

Will close trade if I am up or down 10% based on the cost of the trade.

 

Mark Fenton

mark@sheridanmentoring.com

Why VIX is soaring? ATR is the Culprit!

This week, the SPX has been between 2700 and 2723 if you just look at the closing prices of SPX this week and today. Big Deal?  No.  Twenty three  point range in a $2700 vehicle over the last 4 days? No big deal. Let’s look closer.  Monday and Wednesday had huge intra-day  price ranges, that’s a big deal if you have positions on. Monday had a 44 point range intra-day from 2698 to  2742   and closed at 2717. Wednesday this week had a range of 2699 to 2746 and closed at about 2700. When you see intra day ranges between 45-55, that’s huge. Those are the types of ranges you saw at the beginning of the correction in early February. That makes trading short term trades very difficult, especially if the IV is rising. With the VIX at about 18.39 as I  speak,  I am a little more comfortable with putting on short term , short Vega strategies like Butterflies and Iron Condors  , even with intra-day ranges exploding, why? Because I am now getting some compensation for the volatility in terms of farther ranges in my Iron Condors and cheaper prices and wider Break even points in my Butterflies. When you look at volatility as measured by the difference between the high and low every day instead of just looking at the closing price,  that is called Average True Range. That is a more accurate Volatility metric because it calculates the true volatility of a vehicle. It is more relevant to an options trader because we have trading plans and react to different price levels, not just the closing price.

Dan Sheridan

dan@sheridanmentoring.com

Live Trade: SPX 11 Day Butterfly

SPX  2770.59 at 12:15 central.  Jun  29  Expiration.  11 Day Unbalanced Butterfly

B 1   2740 C,  S 2  2770 C,  B 1  2795 C    9.65 Debit. Margin/Risk $965

Beginning Greeks:  Price  2770     Deltas  -1.38   Theta  19    Vega  -58

Profit target and Max Loss:  8 % Profit and 10% Max Loss of Margin/Risk of $965.

Will keep it simple and use no adjustments.

Mid Price now is 9.65 and not filled yet but still keeping my bid at 9.65 Debit.