Weekly Options Strategies Around Earnings (Remarkable Potential for This 4 Day Trade in $AAPL)

[@alexg.i.]

Much appreciated Seth. @7:57 I believe that the April 26th calls are 'Short' rather than 'Long', and the math would be -$5920+$2830=-$3090 cost... Nevertheless, excellent presentation as always. Thank you!

[@bisrama]

I just found this channel and have to say, you are very clear in your explanations thought process. Great Work!

[@BarnabyFalls]

I think the part that confuses some is when to close the transaction. Here's how I understand it: Earnings are on 4/30. Buy a Calendar Spread on Monday, 4/22 - Chain 4/26 (before earnings) SELL 10 4/26 202.50 CALLS, +$2.83 ea - Chain 5/3 (after earnings) BUY 10 5/3 202.50 CALLS, -$5.92 ea - Total cost: -$3.09 x 100 x 10 = $3,090 On Friday, 4/26, close this Calendar Spread - Sell long 5/3 CALLS 5.45 x 100 x 10 = $5,450 - Buy back short 4/26 CALLS 1.24 x 100 x 10 = $1,240 Proceeds from closing Strategy: $4,210 Cost of Original Trade $3,090 Result: +$1,120 Earnings are on 4/30, doesn't matter anymore. You just better darn well get filled when closing. Thanks Seth!

[@won-suhnordquist7694]

You want to close the day before in order to optimize you chances of getting filled, which would be Thursday 4/25

[@randallewebb]

Sorry for posting so long after the fact.....but you are correct. The only thing to add is that getting filled should not be a problem. The only part of the trade you need to worry about are the Longs. The short options will expire that day.....so there is no need to close those out. As a matter of fact you an hold onto the Long calls for whatever duration you need to JUST close out BEFORE EARNIGNS.

[@randallewebb]

I dont think it is necessary to close soon. As long as the Long options are not carried past earnings you are fine. You dont even have to worry about closing the shorts as they will naturally expire before earnings.

[@Mastermind2010ish]

I wonder why you are not talking about ALL risks of Calendar spread. What if AAPL moves a lot before a short option expires? If AAPL drops $10,then your long will lose MUCH higher than your profit on short calls. Your example is an ideal example where the stock stays at the same price. Of course, you will make money. You also silent about Gamma risk . Also, you do not say a word what would happen if IV drop and your long-term option loses a lot.

[@neevsepicbrawlstarsvideos8863]

IV will hold up for long option before earnings.

[@C00ltronix]

@@neevsepicbrawlstarsvideos8863 IV will typically go up. But stock price will typically move too.

[@gomballll]

I hope you to explain at what kind of IV or IV rank this strategy work best? because, as a buyer (debit) we usually look for low IV and vice versa if we're seller. Greeting from Indonesia. Thanks a lot Seth

[@dek2000utube]

Great! How would you manage this trade if it started to go against you? Where would you put your stop loss?

[@duraisubramaniam1558]

that's his point. it can't go against you much. just put in the 15pct take profit and make sure u close before earnings are announced

[@PeterBoivin]

Great video. I had good success with BKNG

[@desisher5292]

The danger to this trade is if AAPL stock moves after you opened this trade - calendars like this one are quite sensitive to that movement and losses mount up quickly. So eg, if AAPL rose to 235, your calendar would be showing a big loss.

[@JumaaneRay]

Agreed! But there is a possibility to sort hedge out some of that risk with vertical spread if you catch the move against you early enough and the volatility doesn't get out of hand.

[@alsuzy1345]

Thanks Seth. Another great trade to add to the playbook. Back tested this and others through OptionVue. Amazing!!!

[@-YG-]

Thank you this is great content. I do have a question though: How do you deal with a high movement of the underlying stock if it happens during the time you wait ?

[@brandysoda8665]

This startegy is for stocks that hardly move and have HIGH IV which is rare.If forecast is no move IV is low and calendar won't work.Apple for this report may be didn't move.BTW how about if apple gapped up +15 points?In addition ,the slide shows both LEGs were bought (One is sold).TX for the info.

[@sethfreudberg4750]

The trade is exited BEFORE earnings, B. So the latter scenario could not happen.

[@gregw8099]

Seth, any thoughts on how to find candidate stocks? I typically use finviz for screening. Thanks.

[@bevanclark3828]

Do you use double calendars to control delta/gamma risk such as a run up/down of price before earnings?

[@sethfreudberg4750]

Excellent question Bevan. Yes, many do use double calendars for this exact trade. It gives you a wider "tent" but less return potential. Still a great idea if you want the wider tent.

[@Shroomade]

Thank you so much.

[@0824kenchan]

Thanks for your video, which is inspiring. May I ask a further question, what if the short leg becomes ITM and assigned? And can we improve the strategy by trading the OTM pair, will it improve the overall premium efficency comparing to the ATM pair?

[@MrPeters1962]

The problem with calendar -underline moves

[@dpckcmo]

Hmmmm, Seth great info. Today IBM tanked the last hour, NFLX soared in the same time and I didn't see any stocks that stayed in a tight range. How do you locate those? BTW, I think I made a good trade on NFLX this afternoon, will see how the price holds till tomorrow's open. Thanks for the info!

[@neevsepicbrawlstarsvideos8863]

If prices moves, one can use double calendar spread. Or?

[@jnbadger1]

Quick question. Why is there such a price discrepancy between the SPX traditional options and the weekly options which both expire tomorrow? It seems like there could be a trade which is too good to be true.

[@m0wn3d]

The weekly SPX expires at the market closing price whereas the classic SPX expires at the 'estimated' price of the following opening. So you can never be sure, although it's not tradeable anymore, if you win or lose.

[@C00ltronix]

SPX has no earnings.

[@m0wn3d]

Thanks for this intriguing video. I do have one question, though: Why did you use Calls instead of Puts? Or the other way around: When do you use Calls for this and when do you use Puts?

[@jonderrick8508]

He explained this in the start of the video. Because earnings season has people extremely biased towards the longs.

[@sethfreudberg4750]

mown3d I could have used either puts or calls. The trade would have ended up the same regardless because of call put parity.

[@m0wn3d]

@@sethfreudberg4750 Thank you, Seth.

[@vanaduong2427]

wow thanks Mr the best!

[@bmwman5]

So the Short option loses 64% of its value, that too prior to earnings, but the Long option only loses 8% post-earnings?? Doesn't IV crush come into play here? I would think it would lose more than just 8%, no??

[@matthewhunter6938]

trade was closed before the report so long options still had the IV event priced into them short options did not

[@bmwman5]

Matthew Hunter ok am confused.. so the Short option was closed after earnings (or expired) and the Long was closed before the Earnings report?? Doesn’t seem right to me.

[@huntstoddard9322]

@@bmwman5 No, both options are closed at the same time. Seth explains it well but goes a little fast. Go to the gear icon and turn the speed down to .75. It makes Seth sound a little drunk (sorry Seth!) but it's much easier to follow. A confounding factor is that the short option is mislabeled on the slides as "Apr 26 LONG" when it should be "Apr 26 SHORT". The sequence of events is this: Apr 22 open trade -> Apr 26 close entire trade; short option expires -> Apr 30 earnings -> May 3 long option expires You're totally out on Apr 26, four days after opening the trade. It (supposedly) works because the short option value decays right down to expiration day (Apr 26). For the short, earnings are after expiration, so there is no market pressure to inflate its value, while the long expires after earnings, so it's still unusually inflated in value. The net result is you buy back a very decayed short and sell a still reasonably inflated long, for $1000 profit. I would probably be doing this right now during earnings, except that I have no experience with assignment, and as others have mentioned, since you still have the short option on expiration day, and it's ITM, it seems likely that you'll be assigned. This makes me rather uncomfortable, even though I would still have the long option covers. If you're assigned 10 AAPL call contracts that means you have to come up with 1000 shares of Apple! That's $200,000, well above my liquid capital. Yeah I would sell them immediately, but I don't understand the details of the cash flow; does your broker lend you money for a couple hours, at interest? I dunno.

[@sethfreudberg4750]

IV crush takes place AFTER earnings. This trade is exited BEFORE earnings.

[@steverosenberg9994]

that's a reasonable explanation and concern. If assignment were to occur you need capital, shares, or enough credit margin to be effectively short, and yes those long dated calls would obviously offset any losses, but you could lose the entire debit amount spent on the trade.

[@tonyt3067]

Back testing within your example here suggests that an Put /Call Calendar Spread might be in order. A matching 205.5 Put Calendar Spread would limit downside risk. Your OptionVue screen shot confirms same. I really appreciate the creativity you and SMB put into trading and options spreads Seth.

[@igalc]

so in what cases will this strategy lose? or is it win-win-win?

[@beLIEve77]

It loses when the premium spikes right before Earnings. Happened to NKE, earnings date 2024 Mar 21. AAPL is a stock where I can dump in a big chunk of my money (Commons, not Options) and sleep well.

[@Contang0]

Very much enjoying the options videos, like some of the comments, I too would like to know more about what the scenarios are that could hurt this strategy, and what kind of action would be taken to mitigate that. It's a nice looking idea, but I would imagine not the whole story? posting edges on youtube would lead to those being eroded quickly... i've seen this in markets I trade.

[@sethfreudberg4750]

Well Contango the simple answer is that if you get a move too large before earnings, the strategy can take a loss.

[@Contang0]

Thanks Seth, appreciate your time. In generally if I was to offer feedback on the videos you’re posting, it’s that I think you should round off the strategies with more about why it might not work all the time, what/where the risks are...a lot more detail about the less shiny side of the propositions and the probabilistic nature of the bets. Hoping not to sound ungrateful there for the effort you’re putting into them, reading between the lines of a couple of them have generated some excellent trading ideas and I will continue to watch with a great deal of interest... many thanks from London.

[@sethfreudberg4750]

@@Contang0 That's a fair point Contango. I'll look to focus on the downside of trades more frequently in future videos.

[@tjadd5454]

Excellent

[@cottondai]

Wow thank you for this lesson. I will apply it right away.

[@sethfreudberg4750]

You do this on paper at first Cotton in order to get a feel for the trade before you put any live capital into it.

[@yaswanthamaraneni7529]

Anyone tried this approach? how it goes?

[@sethfreudberg4750]

We have a trader on our desk doing trades like this every day, and he's been quite successful.

[@calking3055]

This tells one side of the story, what happens , Apple closes below 190 in this example , you would lose 100% of your capital and go bankrupt 😂. Teach both scenarios, not only half side or rosy picture. We can expect wild swings after earnings.

[@diamonddogs99]

Doesn't this trade run a high risk of assignment since the short options are ITM leading up to expiration? I like the idea, but I wouldn't an ATM Short Iron Butterfly entered the session before earnings provide a higher probability of success because of the post-earnings volatility crush? I've back tested this strategy in several different securities and it seems pretty solid. Thoughts?

[@diamonddogs99]

I spent some more time studying this and now better understand the strategy. Assignment isn't that likely if you exit the "day before/morning of" expiration if the stock is trading in a tight range. I identified $HD and $TGT as good candidates for this strategy. I am going to back test it with some other names and see how it plays out. Thanks again for the idea, Seth :)

[@yaswanthamaraneni7529]

@@diamonddogs99 Can you please backtest on ROKU(146c) and SQ(62c) calendar spreads(nov8th/nov15th), I took each of them as lottos!! thinking to close 1 r 2 days before earning day

[@sethfreudberg4750]

Brian, we have a guy on our desk that does this trade and while he does get assigned, it's rare and there are ways to fix the complication of getting assigned.

[@laurencesmith9306]

Tjis is different approach ftomvol crush. This dies not take event or directional risk

[@alexpoon9048]

What if AAPL drop or rise a lot, what is the outcome?

[@Chuck1262]

I like Seth and I took the options class which was good but the hard sell at the end of the class was disgusting

[@huntstoddard9322]

They're not doing this for their health, you know.

[@ReyFam151]

ADBE is usually a good candidate for this strategy

[@sethfreudberg4750]

Interesting, have you traded that Douglas?

[@vincentjean6756]

apples for apples ;)

[@willu184]

👍🏻

[@smbcapital]

Thanks Will!

[@vincec3590]

Sorry Seth but this idea ONLY works if the price of Apple stays flat for the 4 days. Look at the option chain prices at the 8:30 mark. If the price for Apple goes up or down more than 5 dollars you will lose money. Even with normal volatility It would be easy to lose most of the $3,090 you put into this trade. This is a high Risk to Reward ratio trade that's not worth taking by ANYONE !!! I'm disappointed in you Seth :>(

[@sethfreudberg4750]

Actually Vince, we've got a guy on our desk who does trades very similar to this and has enjoyed great success. These principles work if intelligently applied.

[@fernandodavidez757]

Seth clearly warns about symbols that stay flat. Fair warning

[@hightower1215]

This trade has substantial risks that were not covered in the video.

[@huntstoddard9322]

Like? It's a covered position; in fact it's covered at the same price, so there is no potential for loss if the price moves. The short option expired before the long option, so if you get assigned, you can always exercise the long option to cover the short, so as long as you have the stock or capital to do that, the only thing you risk here is assignment and exercise fees, if any. Do you consider these "substantial" risks? I don't see the big risks.

[@matzg4]

@@huntstoddard9322 Assignment is NOT the only risk you take in a calendar position such as this. As you pointed out, if the price of the stock goes up after earnings your long call will "cover" you. However, if the price of the stock falls substantially after the earnings announcement, the short option would expire worthless but the long option would lose a lot of its value too and you may not be able to recover the cost that you paid for the calendar because it may not recover by the time your long option expires. So, there could be a significant downside risk (which would depend on how low the price of the stock falls after earnings).

[@huntstoddard9322]

@@matzg4 The strategy calls for both options to be closed at the same time, as I understand it. I would think this would be before earnings and also enough before expiration of the short option to avoid assignment. The strategy relies on normal decay of the short option value and unnatural preservation of the long option value due to the imminent earnings report.

[@matzg4]

@@huntstoddard9322 You're right. I appreciate your catching that and pointing it out to me.

[@vincec3590]

I agree Hightower. VERY high risk to reward trade. Easy to lose most of the $3,090 you put in to start the trade. Really a terrible trading idea

[@MaxMakarenko]

Very wired technic selling uncovered calls. Never use it.

[@philthee04]

You have a lot to learn, it's not naked or uncovered, it's spread. Please learn strategies before you say you aren't going to use them. Selling something naked or uncovered means that you have no ceiling and unlimited loss, he covers this by buying the long call after earnings.

[@tjadd5454]

I recommend Netflix

[@Maitreya888]

Problem is if AAPL had bad earnings and tank. you will lose alot of money

[@C00ltronix]

But this trade is closed before earnings.

[@laurencesmith9306]

Omg

[@tinumin]

there is no strategy with Options what moves them what doesn't its all just randomness. Those who still believe in technical indicators work which the whole world is looking at the same time are the biggest fools. Develop your own options or stocky trading strategies to be successful and don't share that strategy on a KZbin video.

[@lexandersantana8089]

AMC

[@tpsu129]

Coca-Cola $ko