How to Trade Earnings with Options

[@smbapplicantross884]

I like how this double calendar earnings trade allows one to profit from sold premium, while hedging risk going neutral bias long into earnings. Very neat and another valuable educational video from Seth!

[@kellyrmerrill01]

your website is the best I have found for option trading strategies . Hard to believe something so good can be free. Keep up the good work

[@pablofernandez1404]

Wow this is amazing. I just lost a lot of money with DELL opening on the opposite side and everything was looking fine. This strategy is pure gold 😊

[@brettelmerelmer3061]

My personal preference with double calendars is to sell weeklies, because that gives me the flexibility as I roll out to the following week, to modify the trade to a diagonal on the hot side, and if it makes a substantial move, if I have bought in pairs, which you did in this video, I can roll half of my hot side sell contracts each Friday, converting the diagonal side to a ratio diagonal spread. I also like to be closer to the money on both sides if I can afford it, so I have a greater chance of going in the money on the longer term bought options.

[@vincenttiene]

Thanks for the tips. Do you always close before earnings? And if you do, how many days before?

[@brettelmerelmer3061]

@@vincenttiene My application of this strategy has evolved to earnings plays. I go out 3 weeks on the calendar for the earnings announcement, play as close to the money as I can. Short calls and puts expire the Friday before earnings, long calls and puts expire the Friday after earnings. If possible, I let the short legs expire, then close out the long legs the day of earnings if the announcement is after market close or the following morning. To defend the position if the stock runs ( look at ANET which I put on 4/22/24, with shorts expiring 5/3, 235 puts, 260 calls) depending on what I think it'll do by earnings, in this case I repurchased my short calls because I think it's going to run hard. Alternatively, I could have rolled up on price keeping expirations constant and put a little cash in my account if I didn't think it had much run in it. It works because volatility stays suppressed on the short legs and keeps rising on the ones expiring after earnings up until the earnings are announced, then volatility falls off a cliff. If you have more nerve than I do, you can hold longs after earnings, but you need a strong earnings announcement to make it worth holding, and my crystal ball don't work that good. Sorry this was so long but there's a lot of detail to it, so keep the post handy and reread periodically to pick them up. Best wishes for your success.

[@brettelmerelmer3061]

@@vincenttiene If the shorts have any chance of being in the money at Friday expiration, close them out. If playing earnings, and I'm not desperate for cash, I'll let the long legs run until late in the trading day of earnings if the announcement is after market close or before market open the following day.

[@sukhtseden2114]

very well explained tutorials. I like it a lot.

[@ramiroalvarezvaldes3498]

Would be interesting to go over selection criteria, for instance delta, stoke price, IV, etc. Also how to manage position in different scenarios.

[@yojoe2345]

Thank You for the helpful instruction!

[@MartinSchoel]

Great explanation. It just looks like the first slide showing the double calendar spread should read “SOLD 152.5 MAY 31 PUT” not …Call. Also, not to be pedantic but that particular Put was sold for 123 at 1.23 - not for 124 shown on the calculation slide next

[@jazznsurf2308]

Yes, correct on both points!

[@stevemccullough7075]

Great video Seth! I hope you are well.

[@smbcapital]

thanks Steve! Seth is enjoying vacation this week so I'm sure he's doing well

[@okeuwechue9238]

Thnx for the vid. Very enlightening. One question though: how do you determine the optimum DTE to select when setting up the calendar? How do you choose between 35 DTE, 20 DTE or 14 DTE strikes?

[@dfumusic4288]

Would that be the same as a short strangle that expires before earnings and a long strangle that expires after earnings?

[@mikelong9638]

Nice strategy. I'm wondering what the guidelines might be for stock selection? Would higher IV or higher IVR stocks work better going into the trade?

[@Kauffman578]

With this strategy you win so long as the price of the stock does not go above or below those strike prices before the forefront expirarion, correct?

[@JGen987]

@smbcapital, thank you for this video. I'm still a little confused. If there's higher IV on options expiring after earnings, why wouldn't we sell those options rather than buy them? Feels like we are buying the more expensive options with higher IV before the IV crush.

[@randallewebb]

Let me try to help you. The purpose of this strategy IS NOT to take advantage of IV crush. You actually want to exit the whole trade BEFORE earnings. Credit-short spreads like Verticals (and Iron Condors) are great for taking advantage of decreasing option prices. IV crush GREATLY reduces prices and happens AFTER earnings. So the key here is to close out position after the earnings and after the stock has moved. The danger with this is you never are sure HOW MUCH earnings can cause a stock to move. A calendar spread is a horizontal spread, meaning the difference between strikes is time. Normally with all things being equal, there are 2 things that affect extrinsic value: time and volatility. That is why the farther dated Longs (back month) have more value or cost more. The short options cost less and are cheaper. Therefore the net of this is trade is a debit because you will pay MORE for the further dated Long option. With the credit spreads, volatility is the same BECAUSE all options expire at the same time. However, with a binary event like earnings, option values get more expensive LEADING UP to the event.... because the market knows there is alot of possibility for movement in all directions. If a short option expires BEFORE the event then volatitlity WILL NOT impact its price......but the LONG option expiring after earnings will cost more because volatility increases. Since the short expires BEOFRE earnings there is no more time decay to benefit from so you exit the trade. You have captured all the time decay of the short, and improved the value of the long by volatility expansion due to earnings excitement. There is NO NEED to expose yourself to swings of option price after earnings. Does that make sense? So it depends on what you are willing to risk and when

[@xavierdoisneau3472]

Buying the options allows them to be sold before earnings, for a profit for a premium for 2 reasons. 1: the earnings move was not fully priced into the option a month ago 2: if the underlying moves towards either of the strikes, that strike expiring after earnings will rise exponentially in value

[@hankcarrie5063]

Great instructions

[@neevsepicbrawlstarsvideos8863]

Thank you Seth for great information🎉

[@jeannotnelson4048]

love this calendar play

[@WakeUpBuildUpLevelUp]

Thank you

[@andreimuster6866]

what is endcalculation?

[@baddyll28]

Thank you for sharing your insights on a great youtube Channel .. This video makes it look pretty easy to be profitable with this strategy. I was wondering if you could comment or do a follow up video on when to exit this strategy if it isn't working i.e. if there had been very little movement in the stock and it was still toward the middle of the entry price range (say 158 - 164) as earnings approached. Presumably this scenario would result in a loss on the post-earnings Long position which exceeded the profit earned on the pre-earnings Short position...at what point do you cut the loss? Many thanks

[@blackjackjester]

You would likely end up closing it out after about 14-21 days if the stock hasn't moved. Your short positions will likely have lost more value than the long positions have. You'll probably scrape out a small win

[@baddyll28]

@@blackjackjester Thank you for taking the time to reply .. is 14 -21 days a loose rule of thumb for reviewing a position on a monthly expiry that isn't working out? (In the scenario of little movement, I mean.) I'm guessing that adjustments might be needed sooner than that if there is a lot of movement. I'm a newbie to options and finding this channel very helpful but trying to understand all the angles and risks before committing to live trades

[@nomad74777]

There is an error in your chart @8:39 and the rest of the chart. You're showing buying 3 calls and 1 put. The Call should be a Put on the 5/31 "call" of $152.50. Also the Calls on 5/31 for 172.50 should read +10, not -10. Same goes for the other side of the chart. You have both 6/7 calls and puts listed as +10, it should read +10 for the calls and -10 for the puts.

[@MMAOnDeck]

Thx for this explanation - I'm interested in learning how to trade earnings and was confused because the math didn't seem right.

[@DBraun-uj8ir]

I noticed the call/put mix-up too, but isn't + for buying (long put or call) and - for selling (short put or call)?

[@journal2talithanne505]

Good explanation but it s missing exemple in a board! For foreigner it could be better . Thanks Kholentanne

[@karljobst-dy3hy]

Always great and informative information.

[@ashleyd3066]

If the stock went the other way 8 points would you still have approximately the same results?

[@Amwatson801]

Maximum profit is realized when either short option expires right at the money. You can verify the payout diagram in you trading platform. It helps if you also verify that implied volatility hasn’t risen too much before you enter, since rising vol provides a tailwind.

[@dmorley100]

I realize this’s WAY off the subject of the video, but I was wondering if you had any videos that talked about DEBIT spreads. I’ve been trying to experiment with them using index options, but I’m having a hard time right now finding any entries that have a good risk to reward, good risk to reward being defined as having a profit potential that’s at least 1.5 times the risk.

[@okeuwechue9238]

the calendar strategy *IS* a debit spread: you're always PAYING to enter the positions (bcos the back-month long strikes are always more expensive than the front-month shorts)

[@EdnaFox-e7n]

Think more about the binary options cause it's a great thing to make easy money

[@dannytetreault]

@ 8:50 This sounds expensive …TBD

[@darkspd31]

I hate that last line "will earn a tremendous return if you become a skilled practitioner..." well yeah, if you get good at running the otm 0 dte calls, you can retire handsomely as well

[@LourdesYoke]

You can't find a better trader on youtube... Just watch and learn

[@Markd4Comment]

This strategy scares me because of the unlimited risk, according to Robinhood. I need to know how to kinda-sorta guess the direction.

[@okeuwechue9238]

calendar SPREADS are being traded here, not naked shorts or longs, so the risk is *defined*, not undefined. Perhaps your software indicates "unlimited risk" because you're legging in to the positions instead of entering your positions as spreads. If you do leg in, the software will probably not be able to recognize that the overall setup is a spread and not just a combo of naked positions.

[@FabriceArbaudie]

which scenario makes us loose money if we trade like this ? 🙄

[@Amwatson801]

If the stock price doesn't move you or it exceeds either strike, the trade will be a loser. But you can monitor that and cut the position or exit the trade. Ideally you want to enter when implied volatility is on the rise leading into earnings. And ideally you would like to stock price to slowly move towards either strike: you don't even need to wait until expiration to cash out. Whatever broker platform you are using should show you the payout diagram.

[@blackjackjester]

A volatility crush or a run in either direction leading up to earnings will put you in the red.

[@FabriceArbaudie]

​@@Amwatson801 thanks for your answer

[@FabriceArbaudie]

@@blackjackjester thanks for your answer

[@TylerBossmann]

JLY

[@assorita3861]

is it normal that when I model these on TOS or other payoff chart, I see negative expectancy in the theoretical at first expiry?