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Earnings Plays

Discussion in 'Beginner Traders' started by JAMES A, Apr 23, 2016.

  1. JAMES A

    JAMES A New Member

    I have sold strangles and iron condors just before earnings announcements but have not had consistent success. Then I remembered a beginners earnings trade and the idea occurred to me to combine the two strategies. Has anyone ever placed a short straddle or short iron condor just before earnings hoping for price to stay between the shorts and volatility to crush? Tom Sosnoff teaches this trade on Tasty Trade. The problem is when price moves much more than expected and then you have a loss. What if you bought a straddle one week before earnings with 60 to 90 DTE (to avoid high IV). Now immediately after earnings you could win on both strategies if price moved but not far enough to be outside shorts. You could not lose on both strategies. If price does not move much, you will win a lot on the short strangle. You will not lose much on the long straddle because it has so long until expiration (Theta has not hurt it much yet). You could hold the long straddle for a couple of days or just sell it immediately after earnings. Now, it price moves a lot, you will lose on the short iron condor, but your losses are limited because this is a defined risk trade. The winnings on the long straddle, however, are potentially unlimited. To wrap this up, I am asking if anyone has ever played earnings with a combination of short iron condor and long straddle? I would appreciate any comments. It is earnings season! Thanks, Jim
     
  2. SnakEyez

    SnakEyez New Member

    Hello,
    I've had the same results as you in regards to earnings plays.
    Earnings plays are considered binary events. You would need to collect enough premium during the wins to offset losses later down the road. I have not done strangles due to the unlimited risk, but have put on short Iron Condors which have both won and lost. The problem with a long straddle is that prices do tend to fluctuate. Sometimes it can be hard to tell what the price will be 60 - 90 days out. Similarly, selling spreads this far out is good if you are right on direction, but the amount of premium collected is less due to lower volatility, and in the spreads themselves are directional.
    Keep learning and stay small. You will find your way :)
     

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