Anyways, having said all that, I didn't have any ER plays in place last night. While I did tweet one potential play (which turned out to be a loser), I had a few others in mind. Two bullish and two bearish. With Apple close at 575 today, let's see what the trades were and how they turned out.
The first bullish trade, and the one I tweeted, was a call diagonal. Note that this trade would require $2000 of margin for each lot put on, but it would only need to be carried until the short strike was rebought or expired.
STO AAPL 27Jul(w) 635 Call for $3.50 credit
BTO AAPL Aug 12 655 Call for $3.90 debit
Net debit of $0.40 per lot
The second trade was merely a bearish version of the previous one, a put diagonal. Same margin requirements apply here.
STO AAPL 27Jul(w) 570 Put for $5.05 credit
BTO AAPL Aug 12 550 Put for $5.50 debit
Net debit of $0.45 per lot
As of right now, the spread is worth $2.77 ($4.75-$1.98). If I had this trade on, I could:
- Take profits now
- Buy back the short put and let the long put run
- Let the entire trade ride in hopes of draining the remaining $1.98 out of the short put
- If you put on multiple lots, close down enough of the spreads to ensure you break even on the trade and let the rest run
Even if you were to combine both strategies to be relatively delta neutral going into earnings, you would still be up $2.20 per lot. The trade would've even been profitable had the stock stayed relatively unchanged today.
The low cost to enter these diagonals is what makes them favorites of mine. But they are not completely devoid of risk, hence the margin requirement.
The last two trades are simply call & put butterflies. Starting with the call fly:
BTO AAPL 27Jul(w) 630 Call for $4.70 debit
STO 2x AAPL 27Jul(w) 640 Call for $5.40 credit
BTO AAPL 27Jul(w) 650 Call for $160 debit
Net debit of $0.90 per lot
Right now these would be pretty much worthless. Your only choice would be to hold them for another few days as lottery tickets.
Now for the put fly:
BTO AAPL 27Jul(w) 560 Put for $3.15 debit
STO 2x AAPL 27Jul(w) 570 Put for $10.10 credit
BTO AAPL 27Jul(w) 580 Put for $800 debit
Net debit of $1.05 per lot
Right now this trade is worth $3.16 ($0.47-2*$1.98+$6.65). Your options are:
- Close the trade down and take profits.
- Let the trade run until Friday's expiration. Your max profit in this case is $10.
- Or sell half now and let the rest run.
Notice the difference in the shapes of the P/L graphs? With the flys, you pay a larger upfront debit for a higher profit potential. Also note that the wider you make the peak by widening the spread strikes, the higher the debit as well. It is for this reason that I tend to avoid butterflies altogether. I save the pin action for the bowling alley.