Small Pass, Big Score


As a trader, the more homework you do before you trade, the greater the chances of success when you do place the trade. Option trader Greg Loehr of details two recent successful trades, even if one of them wasn’t taken.

In a live trading session last week, we analyzed two stocks for potential overnight earnings trading ideas: (PCLN) and (LNKD). After looking at PCLN and analyzing the implied volatility, support/resistance, and the stock's penchant for big earnings moves, we decided to pass on any trade. The analysis showed that there was potentially not enough room for stock movement to produce a winning trade even though the volatility crush was imminent. It was a great 'non-trade' because every potential trade we looked at would have lost as PCLN rocketed higher the next day.

PCLN chart

Click to Enlarge

So next we moved on to LNKD, and this time we found a trade (after looking at several possibilities). After comparing the vol crush in a couple different expiration periods against the potential for a big gap in the stock we settled on an iron condor, with fairly wide strikes to really capture a vol crush, using the one-week options.