Saturday, April 27, 2013

Recap from Friday, April 26

Unfortunately the only time the doc's office could see me on Friday was at 0945hrs which threw a wrench into my trading plans, preventing me from entering the trades I had eyed in the pre-market. I hate trying to chase trades after they start, so I was reluctant to enter any of my trade ideas when I got home at 1045hrs.

The following is also why I choose generally to not play options going into earnings unless there are overly compelling reasons based on options flow. I find that there is plenty of opportunity to play the same stocks earnings moves on market open and not be subjected to vol crush. You also have the luxury of cherry picking what you think are the best directional plays after you already know the earnings news. This is how my two picks played out:

The odds were in the strangle/straddle man's favor on Friday for $AMZN. The 270 straddle for the same expiry cost about $6.00 and hit a day high of roughly $14.00, good for a little bit more than a double. The strangle cost just about $1.00 and was worth about $6.80 at peak. As I said, the 30pt range in the pre-mkt had me thinking that the current stock price wasn't yet fairly valued. The open at 270 on a Friday allowed for some great risk/reward non-directional setups.

For whatever reason, $PCLN trades in almost lock-step with $EXPE on earnings day. $PCLN was off by fractions of a percent in the pre-mkt whereas $EXPE was down 5%. Furthermore, the overall market was looking weak based on the weaker than expected GDP numbers. $PCLN is a high beta name (1.64), so based on GDP numbers alone I would expect it to be off more than the overall market was. Sure enough, after market open it ticked slightly higher only to start selling off. Based on the open of 706ish, I would have looked toward the 700 puts.

If you bought the $PCLN puts off the open you would have paid about $3.00 for them, but as it initially spiked to 710 those puts dropped to $1.00. They hit a high of about $5.00 by 1010hrs only to fade back down to $2.00 before hitting a day high of $6.00 at noontime.

This is a hindsight post so feel free to skip this paragraph. This last one I regretfully didn't catch in the pre-mkt, but it looked like an odds-in-your-favor play. That was to play the Friday expiry $GS 145 puts. The stock was hanging right around that key support level of 144 and tried to break higher over 145 off the open. It could barely do that during the strong tape a day prior, so it probably wasn't going to happen on the weak friday tape. Sure enough, it ended up hitting a day low of $143.

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