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Tutorial: How SMAC can help find the Ideal Covered Call StrikeQ3 Earning season is approaching fast Background: The earnings covered call volatility play ------------------------------------------------------------------ one of the easy earning plays if you hold a portfolio of stocks (or if you're a fan of the wheeling strategy) is to sell Covered Call (CC) right before the earnings announcement - when the volatility is inflated and the premium price peaks - usually using weekly options - which then you can close immediately after the earnings have been announced, or just leave them to expire worthless if they end up out of the money (OTM). When this play is done right, and depending on your position size, it can deliver few hundred (if not thousand) bucks literally overnight. When we design this play, we need to consider also the scenario that with the earnings announcement, the stock price may shoot over our selected strike, and we may end up getting assigned - and the stock is called away from us. However, with the proper "design" of this trade play, you can set it up for a "no-lose" trade scenario - if you don't get assigned, you keep all the call premium (not bad for a 2-day trade) - see example below - you still keep the stock. - if you get assigned, you will earn the difference between the strike price and your breakeven *plus* the covered call premium -- so a winning trade in both scenarios. if we can repeat this play for few stocks during earnings, the gain can accumulate and bring in a very "good month" for the trader who can master this play. Using the SMAC to make this scenario easier ----------------------------------------------------- One of the reasons i wrote the "Auto-stepping, Zero-lag Moving Average Channel - SMAC" script is to help me with trade scenarios like this. Let me share how. - Assume i hold 1,000 AAPL shares in my portfolio. - i just bought them couple of weeks ago - and i am planning to play the volatility and sell Covered Call into the upcoming earnings using the weekly options. - my goal is either to collect the call premium and keep holding AAPL past the earnings - or to get assigned and sell the stock and realize a profit larger than what i would have got if i just bought then sold the stock direct - my preferred strike "distance" is 5% Out of the Money (OTM) - which can give a reasonable value of premium while giving me room to still keep the stock if the price doesn't shoot that high due to the earnings. - I plot my breakeven price on the chart - say for the example here, it's $143 - Add the SMAC to the chart and set the SMAC Percent Envelop to 5% - This will immediately show what price range i should pick the Covered Call strike if i want a 5% OTM -- it's the $151 or the $152. Maybe i would pick the $152, cause if i get assigned, it would give me a larger gain on the underlying position. Calculating the P&L for both CC scenarios is also easy now on the chart --------------------------------------------------------------------------------------- - Not Assigned: after the earnings, the stock still closes below our strike - we can even leave the call to expire worthless - no commission paid - i keep the premium assume the CC premium is $1.3 by the time i sell the CC & assume i have 1,000 AAPL shares, that's $1,300 over-night! = 1% return and i still keep the stock - We get assigned with the same assumptions above, we keep $152 - $143 = $9 + the premium ( = $10 bucks per share -- that's $10,000 in 2 weeks. around 7% return) - we can buy AAPL again later on a dip. *** Big Note here --------------------- Another scenario is, if my breakeven for AAPL is above the 5% strike price level, in which case, i would not consider this trade at all - because if i sell the CC and i get assigned, i would basically close my position at a loss - again, once i set the SMAC and my BE of the chart, i can easily see if that's the case and make a fast trade decision - here's how this would look on the chart if you hold 1 or 2 positions in your portfolio - this whole SMAC / Chart thing may not be worth it - maybe a quick mental calculation or simple spreadsheet is easier :) - but if you hold 15-20 positions in your portfolio / multiple accounts, doing this fast during the earnings days and visually on a chart can save a good amount of time and give more confidence. i hope this can inspire some fellow traders to share how else they can use the Auto-stepping zero-lag Moving Average Channel Please do not treat this post as a trade recommendation - or as trading education - i'm just sharing thoughts and some of my limited experience - Please trade safely.
Editors' picks
NASDAQ:AAPLEducation
by RedKTrader
16
Ride The Wave Ride the wave, and cash out before earnings. Technicals mean nothing for the Tesla Machine as investors want to buy in before earnings. Does this indicate we are guaranteed an EPS beat and stellar conference call? What about future outlook? I need your help on this one! Comment your thoughts on Tesla and research backed support is a must! No Tesla fanboys allowed, I am looking for facts and I will be putting the research in myself and updating this publication daily and responding to comments daily. Lets make this the ultimate hub for Tesla pre earnings Happy trading to all!
NASDAQ:TSLALong
by Myantman101
SNAP: How to proceed in this post-earnings?Hello traders and investors! Thanks to the earnings report , SNAP is flying today. But how to proceed when this happens? Is it time to buy, to sell, to go short, or just do nothing? The charts will give us an answer. If you are in SNAP, I always advise to book at least half of your profits in a day like today, just in case, and then set a technical stop-gain . On SNAP, the technical stop-gain is below the $ 73.59, as this point was the previous All-Time High, and it is supposed to work as a support in the future. In the next week I would just set a trailing stop-gain under the previous day’s low. If SNAP keeps going up, that’s great. If it drops, then ok, time to exit. Is there any chance that it’ll fill this gap? Yes, but I find this unlikely, at least for now. This is a Breakaway Gap enhanced by the earnings report, and SNAP did a breakout from the ATH by doing this gap (I like to call this Monster Gap ). The last time this happened on SNAP the momentum was so strong that it prevented even a pullback. Let’s remind SNAP on October 2020: What could happen on SNAP right now, if it can’t keep pushing up, is a sideways correction , until the 21 ema catches up with the price again in a few weeks, to offer us a new support level on SNAP. If I were out and wanted to buy SNAP, I wouldn’t count on a pullback, but I would wait for it to cool down a little bit more, and for the Risk/Reward ratio to make sense again. If I buy right now, it would feel like I would be buying from someone who bought at the last dip, and will use me to book profits. Eventually, the 21 ema will get closer to the price, and we’ll see a good opportunity then. For now, as someone who’s out, I’ll just stay out. There are many more interesting stocks around. Remember to follow me to keep in touch with my daily studies, and if you liked this idea, please, support it! Have a good weekend!
Editors' picks
NYSE:SNAP
by Nathan_The_Finance_Hydra
23
WISH Trend Analysis following EarningsIf WISH misses with earnings this upcoming week, technicals and projected fundamentals support a break below valuation in the lower $11 range. With a test of $9.35 for the next earnings bottom range. It is likely to find support in this range and move back into test range of $11.05 and $12.18 into the following earnings. If WISH continues to beat expectations and hold progression, they have a future valuation of around $20-$21. A nice move to set up reaching this evaluation would be filling supply and demand imbalances between $15.50 and $17.50, with retracements back into $12.50-$13.00 for a move into next earnings. Good earnings there would have the equilibrium to test above range of valuation as support, moving into this years full earnings release next year during Q1 2022.
W
by rickhubbard10
1
PERI : COIL / SWING TRADEPerion Network: On The Verge Of Breaking Out To New Multi-Year Highs Israel-based provider of digital advertising solutions raises guidance for the second time in two months. Outperformance attributed to better-than-expected revenue synergies from recent acquisitions as well as higher demand for the company's Connected TV and video offerings. Search business de-risked by recent four-year contract extension with Microsoft. Management hinted to renewed growth opportunities in the press release. Company trades at a massive discount to advertising pure plays The Trade Desk and Magnite. Watch for strong guidance on the company's upcoming fourth quarter and full year 2020 earnings report on February 9. SOURCE: Henrik Alex, SeekingAlpha seekingalpha.com
NASDAQ:PERILong
by TradingMavericks
1
Earnings Straddle. Part 1: Selecting a stock to straddle.Today I have selected Amazon (AMZN) as a good stock to straddle because it is reporting earnings in 3 days (actually 2), it is reporting earnings after market close, it is a highly liquid stock, and it has shown previous volatility during earnings reports in the past. ------------ This will be a 3 part series detailing: 1) Selecting a stock with intention to straddle. 2) Placing straddle orders. (If market conditions hold this will be the simple version known as "putting on" the straddle.) 3) Exiting the straddle. (I will get that reading done sooner than later. Plenty of time to digest and make a post about it.) ------------ Stay tuned for Part 2 coming on Thursday, 4/29.
NASDAQ:AMZN
by emehoke
$ENPH Bullish Earnings PlayI trade almost entirely using options, shares are typically only there to hedge Greeks or if a stock has a terrific opportunity to sell covered calls. When you are trading in options you need to understand that while technical analysis and fundamental analysis are still important, what is usually most important is how the options chain looks-- what is the Implied Volatility curve, the skew/smile, and etc. This is primarily why Earnings present such an incredible opportunity because people throw money all over the place betting on some kind of move, and usually over pay. So note that this play is less about Enphase Energy as the company or what support/resistance levels I see and etc, its more of a "This is a killer value" option spread. Background Enphase is a solar energy stock. Solar stocks and electric vehicle (EV) stocks as well as some others have been really beat up recently but I've been seeing a ton of reversals which lead me to believe another "trash flash" rally has just begun. Looking at $IWM or $US2000 you can see a wedge or sort of diamond top has broken through to the upside. Technical My bottom pane has my Price Action Index indicator, which shows a breakout to the bull side already underway on this stock. You can see that on the Bollinger Band as well-- it was squeezed in consolidation and now the band is expanding in size as the stock hovers above the top band. Options Analysis There are some levels of resistance above that I think this stock can go through pretty easily until it gets to that $190-$210 cloud. This is so obvious that options traders have attacked OTM calls for near-term expirations pretty aggressively. Here is a (crude) diagram of the $ENPH smile graph for this Friday’s expiration-- This smile is called a “forward skew”. Note that it is INSANELY weighted towards the bullish side. Options traders are pricing in the potential for a giant move up. Therefore, we try to exploit it . As this near-term 4/30 expiration has priced in OTM calls very expensively, the next expiry afterwards, 5/7 has about 20% lower IV At The Money, and OTM we’re looking at about 25% less IV. It looks like this: $200 Call for 4/30 has an IV midpoint of 120 $195 Call for 5/7 has an IV midpoint of 90 This spread is affectionally dubbed the “Poor Man’s Covered Call” but it is simply a Diagonal Call. It is somewhat similar to being long shares, however I want to limit my risk to the downside and not get stuck holding shares for a long time. If it does backfire by a lot then that means my long calls will go worthless If the stock doesn’t move at all from earnings, I make the decision of: rolling my short calls to my long date (5/7), buying to close the short calls after they’ve been IV Crushed and hoping for some upside to come later, or taking a small loss (say $200-400) If it goes mildly up, I make a mild profit If it hits $200 there and expires at that price, I take my maximum profit: my choice of closing the spread then, holding my long call (I would probably roll another short one against it) If ENPH does some insane move over 3 standard deviations into the moon, say $240, I still make profit but that short $200 call digs at it (I have more extrinsic/time value with my option being 1 week further to expiry than the short one does) What is really nice about this setup is you have ALL of the Greeks working with you! I am positive Delta, very positive Theta , a smidge positive Gamma, positive Vega, and even positive Rho (not that that matters much here). Past Earnings What I love about this earnings play is that of the past 12 earnings reports Enphase has had, only 2 have had a move to the downside . The other 10 have all been positive-- +1.0%, +4.2%, +8.8%, +9.5%. +9.5%, +14.0%, +18.7%, +29.3%, +30%, and +42.4%. A move up to $220 is not out of this realm of possibility. But all I am looking for is a move up that is at least 2.0% or so. And the beautiful thing is that the Average Move of the last 12 earnings comes out to +/- 16.6%, which would be about $201. Trade Entry I got my spread filled at a $1.98 debit. I put my walk limit order in and started working on this idea and got filled there. I am plenty fine with that fill but if you are patient the Bid-Ask spread is currently $1.72-$2.33 with a mid of $2.03. From my personal experience, getting filled can be a tedious process because I want the best possible price but I also hate being too cheap and watching a good trade pass me by. In the end a nickel or dime difference on the fill is not the killer, it is the trade not working. Best of luck. Let me know if you have any thoughts or ideas or are playing this as well. EARNINGS ARE TOMORROW/TUESDAY AFTER MARKET CLOSE! Please remember that this is NOT financial advise and I have no certifications or qualifications to give financial advise.
NASDAQ:ENPHLong
by chrism665
1
Goldman Sachs Reports Earnings Next WeekThe last two weeks have seen a sharp pivot toward technology stocks and the Nasdaq. But traders might want to remember that big financials including Goldman Sachs kick off earnings season next week. Several patterns appear on the chart. First, GS has pulled back near its 50-day simple moving average (SMA) but not quite touched it. Second, its range has been tightening. Bollinger Band Width is down to its tightest levels since mid-December. This creates the potential for price expansion. Finally, stochastics recently showed an oversold condition. Aside from earnings (on Wednesday, April 14), the economy is a potential catalyst for GS. Most data continues to point toward a strong recovery – especially today’s higher-than-expected producer price index. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
NYSE:GSLong
by TradeStation
Nike Is Trying to Break Out Before EarningsNike has taken a long pause, but now the sneaker giant may be trying to break out with earnings due Thursday afternoon. NKE beat estimates on December 21, eliciting a wave of bullish analyst notes. However the stock rallied before the report, and proceeded to ease lower for the next 2-1/2 months. The result has been a price channel with a slight downward slope. Given its big run off last year's, that’s starting to resemble a long bullish flag. (Notice the similar pattern between September and November – also following a strong quarterly report.) Interesting things happened on March 5. NKE briefly undercut its January low and tested levels previously seen in mid-November. The shares came surging back to end the session in the green, resulting in a false breakdown and bullish hammer. They kept running from that point and yesterday managed to close above the top of the descending channel. Given NKE’s exposure to the economic reopening and strong results lately, traders may expect more good news this week. Related names like Foot Locker, Under Armour and Skechers USA have also been hitting new highs. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
NYSE:NKELong
by TradeStation
6