EARNINGS TRADES PART 2 20190819 RDO SFFxO Traders Meetup (Raleigh - PowerPoint PPT Presentation

EARNINGS TRADES PART 2 2019‐08‐19 RDO SFFxO Traders Meetup (Raleigh Durham Open Stocks Futures FX O Options Traders) i T d ) PRIOR TALK 2018‐05‐23

Dan Queen– Background Dan Queen Background • Product Management for ITT, Alcatel‐Lucent, now Nokia – (Electrical Engineer by training‐Marketing) • Retired 2012, started trading full time, married, 3 kids, 2 Gd • Tried various trading or studied methods – IBD canslim, Dailygraphs, Vectorvest, Wisetrade, OptionMONSTER … – Opened Datek Margin Acct 2002=>TDA Sept 2002, OptionXpress p g p , p p =>Schawb, Fidelity IRA – Watched CNBC, Cramer’s books/TV, Barrons, AAII … – Investools couse 2011, Reading and Study Investools couse 2011, Reading and Study – 2012 TDA Trader TV clicked on Tastytrade and ShadowTrader …. – Today options trades are done on tos, tastyworks and none since last time on Fidelity which is a very limited platform since last time on Fidelity which is a very limited platform 2

Last talk 5‐23‐2018 Earnings Trade Presentation outline d l • Market Maker Move (MMM) Market Maker Move (MMM) • Implied Volatilty (IV), IVRank, IVPercentile • Probability of touch • Probability of touch • thinkorswim (tos) Platform use set‐ups • Trade set‐up T d t • Chart examples • Results YTD of earnings trades • Q&A 3

Today’s Earnings Trade Presentation outline d l • Review what an earnings trade is Review what an earnings trade is • How to find earnings trades using Excel. – Download stocks with upcoming earning – Remove ones without options – Remove low priced stocks – Note stocks in certain sectors to avoid – Rank order by opportunity • Defending trades gone wrong – Rolling untested side to collect additional premium depending on DTE – Roll out in time and wait to be right – Close trade when loss is 2x credit collected 4

Thanks to Tom Sosnoff Thanks to Tom Sosnoff Thanks to Bill Gates Excel h k ll l VisiCalc created by Dan Bricklin , Software , Arts with Bob Frankston 5

Trading Style Trading Style • Strategic Strategic • Seller of premium • Options not stocks • Options not stocks • Contrary • Trade small T d ll • Defend trades – 2x or 3x the loss – Or …… Until the stock beats you. 6

Why I trade earnings Why I trade earnings • 2014 When I started trading frequently it was 2014 When I started trading frequently it was the only time I could collect any premium • See the results quickly late afternoon Mon • See the results quickly, late afternoon Mon‐ Thur and close the next day or two. • Have more trading occurrences H di Watching; little Watching; little Need Batting Practice Need Batting Practice improvement of Learn by doing decision ability 7

Experience =Number of occurances Option Trading and some analogies d d l 8

How How • Trade from the short side. Sell Strangles or Trade from the short side. Sell Strangles or Iron condors in the case of high priced stocks, ~Delta Neutral • Place the trade close to day’s end for earnings after the close and before next day’s market open. • Profit by the IV crush after earning announcement is released. Buy back position at profit 9

SPY 2004‐20190812 Weekly Bars SPY 2004 20190812 Weekly Bars 2019 2017 Flat for 2004 Year Avg IV ~17% since 2011 = = = = =  https://www.macrotrends.net/2603/vix‐volatility‐index‐historical‐chart 10

Volatility Volatility • Implied Volatility (IV) is determined by the p y ( ) y current option contracts pricing on a particular stock or future. It is represented as a percentage that indicates the annualized expected one that indicates the annualized expected one standard deviation range for the stock based on the option prices. For example, an IV of 25% on a $200 t $200 stock would represent a one standard k ld t t d d deviation range of $50 over the next year. • IV Rank • IV Percentile 11

Difference between IV Rank IV Percentile Difference between IV Rank IV Percentile https://www.tastytrade.com/tt/shows/options‐jive/episodes/difference‐between‐iv‐rank‐and‐iv‐percentile‐02‐19‐2016 12

IV Percentile IV Percentile 13

IV Collapse after earnings announcements IV Collapse after earnings announcements OJ_GuideToTradingEarnings_170427.pdf 14

tos chart showing IV, IV Rank, IV Percentile earnings est‐act and time SEE thinkscript at end of presentation, show edit study Telephone =Conf Call Lightbulb = Earnings Annoc h b lb IV IVP IVR IVP IV 15

ATT IV Drop After Earnings Example 7/25/17 10/24/17 1/31/18 4/25/18 PRICE IV 16

The AAP trade 8/12‐8/13/2019 The AAP trade 8/12 8/13/2019 17

AAP Earnings 8/13 6:30am screenshot ~8:30 am h  IVR76 IVP83  IVR76 IVP83  IV43 18

AAP 8:05 AM 1‐min Bars AAP 8:05 AM 1 min Bars  IV43  IV43 19

AAP 10:48 1‐min Bars, Short 125P/160C 20‐Sept Sold @ 3.35 Buy @ $1.60 10:43am 10% Return on BPR 10% Return on BPR IV drop  20

How to build a Earnings Calendar Spreadsheet How to build a Earnings Calendar Spreadsheet • Go to tos calendar • Select the days desired After Day and Before Day • Export each csv file and merge them • Add column formulas for MMM, strike points volume, price Before After. 3 min effort so far • Sort to remove stocks with no options low priced and volume • Sort to remove stocks with no options, low priced and volume stocks 2.5 min additional • Copy into watchlist, then export to csv file Stk avg volume, py , p g , correl volsizzle, HTB/ETB, Industry, Sub‐Ind,sector, div freq. 3 min additional • Open above csv file. Open spreadsheet 2 and copy stocks, O b fil O d h t 2 d t k then selected static values. Save both files with unique 21 names. 2 min additional or 10‐12 min total.

Show live tos Calendar examples here See attached Excel spreadsheet See attached Excel spreadsheet 2019‐08‐20‐21‐Calendar.xlsx 22

Tastyworks Earnings Watchlist ( (Tastypicks news letter is free) k l f ) 23

Building Custom element Building Custom element After the market close = BarsTilEarnATM CUSTOM4 input length=20; def xx = ‐getEventOffset(Events.EARNINGS); def yy = sum(HasEarnings(type = EarningTime. AFTER_MARKET ),length)[‐length +1] > 0; plot x= xx+yy*.5; plot x= xx+yy* 5; Before the Market Opens = BarsTilEarnANY CUSTOM5 input length=20; def xx = ‐getEventOffset(Events.EARNINGS); def yy = sum(HasEarnings(type = EarningTime.Any ),length)[‐length +1] > 0; plot x= xx+yy*.5; barsb 24

What is Market Maker Move ( M M M ) What is Market Maker Move ( M M M ) • MMM or Market Maker Move measures the MMM, or Market Maker Move, measures the expected magnitude of price movement based on market volatility It measures the implied on market volatility. It measures the implied move based on volatility differential between the front and back month The MMM helps to the front and back month. The MMM helps to identify the implied move due to an event between now and the front month expiration between now and the front month expiration (if an event exists). • http://tlc.thinkorswim.com/center/faq/general.html#q_01111111111119 25

Market Maker Move ( M M M ) Market Maker Move ( M M M ) • Expected move is the amount that a stock is predicted to increase or decrease from its current price based on the current level of implied decrease from its current price, based on the current level of implied volatility for binary events. We use this calculation on the day before the binary event or very close to the expiration date. The expected move of an stock for a binary event can be found by calculating 85% of the value of the front month at the money (ATM) straddle Add the price of the front the front month at the money (ATM) straddle. Add the price of the front month ATM call and the price of the front month ATM put, then multiply this value by 85%. Another easy way to calculate the expected move for a binary event is to take the ATM straddle, plus the 1st OTM strangle and then divide the sum by 2 then divide the sum by 2. We only use this for a binary event because the accuracy of premium decay and all of the variables associated with implied volatility are too rich to accurately reflect expected move for a longer time period to accurately reflect expected move for a longer time period. • https://www.tastytrade.com/tt/learn/expected‐move 20180502 26

Front‐Back Month IV Difference MMM location l Frt mth less than back mth therefore no MMM shown (data 20180518) shown (data 20180518) 27

Probability of touch 2x Prob ITM or Delta during trade l d d 16_04_08_Probabilty_of_Touch‐_Realistic_Expectations_(MM)_rev.pdf 28

Probability of touch Probability of touch (cont) (cont) 29

Guide To Trading Earnings Guide To Trading Earnings OJ_GuideToTradingEarnings_170427.pdf 30

Example: TWTR 4/24‐4/25/2018 Example: TWTR 4/24 4/25/2018 31

Example: TWTR IV DROP 3 MIN IN Example: TWTR IV DROP 3 MIN IN 9:33:42 am .7129 .5805 32

PLCE – TRADE NEAR MKT CLOSE PLCE TRADE NEAR MKT CLOSE Trade time 14:28:37  A little early, note IV increase into close. Try 3:30 EST 33