Small Pass, Big Score

11/13/2012 7:00 am EST


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. Here's the trade that used the options expiring November 9:

Sold to open 3 of the 100 puts
Bought to open 3 of the 85 puts
Sold to open 3 of the 110 calls, and
Bought to open 3 of the 125 calls,
As an iron condor for a $6.00 credit

The earnings announcement was released after the close last Thursday, and the stock reacted on Friday by gapping higher. See the chart below.

LNKD chart

Click to Enlarge

But the vol crush was large enough and quick enough to overcome that move. By mid-morning on Friday the short options were closed for a $2.85 debit. That locked in a $3.15 profit, which on three contracts netted $945 of profit on a $2,700 risk. That's 35% overnight.

By Greg Loehr of

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on OPTIONS

Keyword Image
Collar Hedging Strategy
01/28/2019 12:38 pm EST

Jay Soloff, who is presenting at MoneyShow Orlando Feb. 7-8, describes a no-cost collar strategy and...