Tulsa Options Trading Meet Up WELCOME

Going LONG at Earnings

Unlike stock trading, MATHEMATICAL PROBABILITIES can be calculated before placing an option trade. Definite numbers; no guessing. HOW? Because option prices are different than stock prices and are affected by variables that can be measured --- among them, 1) the price of the underlying, 2) implied volatility, and 3) days to expiration.

1st of all – Numerous studies have proven that your highest probability of consistent profit exists when you are an option seller. By limiting your maximum profit to the premium you receive for the trade, you increase your probability of profit.

AND as a Seller, you need two other things on your side that are easy to determine. 1) High IV WHY? High IV over 50% insures that you get sufficiently paid for the risk you are taking. Best scenario Risk 3 to make 1

2) Proper Duration -- sweet spot is 45 days – As a Seller, your advantage stems from time decay – 40 to 50 days. Longer time to expiration and you’re not collecting enough THETA decay for each passing day; shorter time and you’re not giving yourself enough time to be right.

BUT, There are also times to be a BUYER, and that’s tonight’s main topic.

With current market indexes at all-time highs, producing many underlyings with Low IV, combined with the short-term nature of Earnings Trades – Is there money to be made going Long at Earnings?

* Long Earnings Trades are highly directional – pick a side for each trade and one side only or don’t place the trade.

When you are an option buyer you want Low IV (BELOW 50%) WHY When you are an option buyer you want Low IV (BELOW 50%) WHY? So that you don’t overpay for the trade.

Secondly, the shorter the duration of the trade – the better Secondly, the shorter the duration of the trade – the better. THETA time decay works against an option buyer. You need a big move in your direction – the bigger the better, and you need it sooner than later.

Comparing Last Quarter’s Earnings to Current Earnings Per Share Estimate SYM PREV EST YHOO .08 .10 TSCO .50 1.26 HAL .07 -.18 BX .23 .64 COG -.77 -.20 KSU 1.33 .64

Three Reasons to get the Lowest Debit Possible 1) It Lowers Your BREAKEVEN

2)You can afford to place more contracts

3) Near EXPIRATION, option prices trade near PAR with stock prices ---

DOUGH.com Step Up to Options with Rachel Fox