FB Earnings Play

10/29/31

FB earnings come out on 10/30 after market close. We are looking to place a non-bias iron condor that capitalizes on the expected volatility contraction. I accidentally placed this trade a day earlier than I intended, so we'll see if this makes a difference.

YELP Earnings Play

10/29/13

YELP earnings get reported today after market close.

LNKD Earnings Play

10/29/13

LNKD earnings come today right after market close, so we are looking to setup an earnings play.

TT - BP: Volatility Expansion, 10/28/13

Volatility

• Q:  What does Implied Volatility (IV) represent?
• A:  IV represents a 1 Standard Deviation (1SD) move in the underlying for the next year. It is displayed as a percentage, meaning if AAPL has an IV of 0.3 then a 1SD move would be 30%. If AAPL is currently trading at $500 then it would have an expected move of +/- $150.

• Q:  Can IV be used to estimate moves of an underlying on a shorter time frame than 1 year?
• A:  Yes.  1SD Move = Price * IV * SquareRoot(DTE/365)

Using the above example of AAPL, the expected 1SD move in one month would be:

500 * 0.3 * SqRt(30/365) = $43

• Q:  What is the relevance of a 19.1% IV?
• A:  A 19.1% IV represents an expected move of 1% per day. Twice that IV, or 38.2%, means a 2% expected daily move.

• Q:  What is Realized Volatility?
• A:  Realized Volatility refers to the actual move of the underlying.

If AAPL (trading at $500 with an IV of 0.3) moves $100 in one year then its volatility is 0.2 (100/500) or 20%.

• Q:  What is IV Rank and how is it used?
• A:  IV Rank (or IV Percentile) shows where the IV currently sits in relation to a specific time period (usually one year). We have seen that IV is consistently a mean reverting metric and IV Rank allows us to capture this, putting it on a comparable scale. We look for underlying with high IV Rank to sell premium.

• Q:  What is the significance of Implied Volatility for each option expiration cycle?
• A:  The IV on a specific option cycle represents the given IV for that time period (expiration cycle). The IV on any given option chain will often appear similar to one another and the overall IV of the underlying. A vol discrepancy will often appear on the closest expiration after binary events, such as earnings.

• Q:  What is vol skew?
• A:  Vol skew refers to the fact that volatility and velocity is greater to the downside. Skew builds extra premium into the OTM put when compared to the equivalent OTM call. For this the options pricing model is based on a lognormal distribution, as a stock price cannot fall below zero.

thinkScript: Price Percent chart label

A useful indicator or strength or weakness in an equity is when the price moves up or down 10% in 2 weeks. For indexes this change is 5%.

This Chart label compares the current price with the high and low for the past specified period (default is 2 weeks) and displays the maximum price change. When the default threshold of +/- 5% is reached the label will turn red for a loss and green for a gain.


####begin study: TT_PricePercent
#
# Hint: From TastyTrade. Takes the high and low close for the specified period and compares to the current. The greater change is displayed as a percentage in a label.
#
# length is # of trading days. 10 = 2 weeks.
input length = 10;
input price = FundamentalType.CLOSE;
input pricePercentUP = 5.0;
input pricePercentDOWN = -5.0;
#
def priceday = Fundamental(price, period = aggregationPeriod.DAY);
def high = Highest(priceday[1], length);
def low = Lowest(priceday[1], length);
def PcntChHigh = 100 * (priceday/high -1);
def PcntChLow = 100 * (priceday/low -1);
def PercentChg = if(AbsValue(PcntChHigh) >= AbsValue(PcntChLow), Round(PcntChHigh, 2), Round(PcntChlow, 2));
#
AddLabel(1, Concat ("% Chng: ", PercentChg),if percentChg >= pricePercentUP then color.DARK_GREEN else if percentChg <= pricePercentDOWN then color.RED else color.GRAY);
#
#####end study.

UNH Debit Spread

10/17/13 -Closed

This is a post-earnings trade on UNH. After dropping this morning from yesterday's close of 75.19 we decided to buy into the slight pullback.

• Vertical Debit Spread, UNH @ 71.31
• BTO +1 Nov 67.5 C
• STO -1 Nov 70 C
• Debit = 1.95
• Risk = 195
• BE = 69.45
• ROR = 55 / 195 = 28%

Update: 11/14/13

• STC Nov 67.5/70C @2.45
• Net = $50
• ROR = 25% in 28 days

TOS Tip: Custom Quotes

Thinkorswim allows 19 custom quotes for use as customized columns. They can be used on the Trade tab, Stock Hacker Scans, and Market Watch Quotes.

In order to use the Custom Quotes you must first be on one of the screens that support them. Right-click on any column heading and select Customize.

Type 'custom' in the search box that says 'Lookup a column...' This will filter out all but your custom columns, even ones that you rename.

Click the scroll icon for the custom column you want to edit. Click on the thinkScript Editor tab and delete any code that exists. Copy the desired code and paste it on line 1. Fill in the Column name to match.

After customizing each column they must be added to the current display set. You'll probably have to remove some of the existing columns to make room. Make sure that you save the Workspace so that your customizations are easily recalled.

NFLX High IV Rank

10/10/13

This is a purely high IV play. With the 2-month IV Rank at 98%, the inflated premiums offer up a nice Iron Condor. Normally this type of trade is opened around the 1st of the month so there are 45 DTE (days to expiration), but at that time the IV was 15 points lower.

• Iron Condor, NFLX @ 305.80
• STO -1 Nov 390 Call
• BTO +1 Nov 400 Call
• STO -1 Nov 215 Put
• BTO +1 Nov 205 Put
• Credit = 1.47
• Risk = 853
• ROR = 147 / 853 = 17% in 36 days

PCLN Iron Condor

10/2/13

Today was our first meeting of the Humpday Traders.

This first trade started with a recommendation from Dinger.

PCLN @ 1067.00
STO NOV 1205 CALLS for a nice credit.
If you can't go naked or don't want to....you could consider:
STO NOV 1205 C and BTO NOV 1220 C for a solid credit.

After looking at the chart, we see that the current IV percentile is 50% compared to the past year, 77% for the past 4 months, and 100% for the past month. As a side note, TastyTrade is now referring to 'current IV percentile' as 'IV rank' in order to avoid the confusion with current IV. With the monthly IV rank at 100% we can cash in on the high premiums by add a credit Put spread to Dinger's Call spread to create an Iron Condor. The high IV rank also allows us to move farther OTM to the 90% strikes. This morning with PCLN @ 1056 I placed an order to sell an IC for $1.70.

• Iron Condor, PCLN @ 1056
• STO -1 Nov 1210 C
• BTO +1 Nov 1220 C
• STO -1 Nov 895 P
• BTO +1 Nov 885 P
• Credit = 1.70
• Risk = 830
• ROR = 170 / 830 = 20%