The 10-Day Earnings Trade: A high percentage option selling strategy

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The Hourglass Trader

The Hourglass Trader

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@daveelder6127
@daveelder6127 Жыл бұрын
You can't immediately write the covered call for the next week out because what happens if you don't don't get put the shares for the 2 day out expiry? if you don't get put those shares you'll then have a naked call that you've written where you could get smoked if the stock goes up a ton. Whats your thoughts for that scenario?
@thehourglasstrader9280
@thehourglasstrader9280 Жыл бұрын
Great question - we generally handle this one of two ways: (1) just sell or roll to a cash secured put at the strike you were going to sell the covered call at. They’ll have the same amount of extrinsic value and effectively are the same position from a P/L perspective (2) “manual assignment”. Which is basically just buying back your CSP and then purchasing the shares you would have been assigned. That way you can sell the covered calls before the bell and have them set before the weekend. If your CSP is in the money, which it should be in that scenario, there shouldn’t been much extrinsic value left late in the day on Friday so doing this maneuver won’t lose you any money and should have the same net impact as assignment.
@DanGaskell
@DanGaskell 3 жыл бұрын
Would it make sense to make the expiry date come before the earnings date? This way the actual news of the earnings won't affect the stock price until after the option expires?
@thehourglasstrader9280
@thehourglasstrader9280 3 жыл бұрын
Good question. So the idea here is that the first put that we sell is free and clear of any earnings risk, which is what you suggest. But the "defense" we play is that the following week we'll be able to take advantage of the increased premiums because of earnings. So to your point the initial trade that we make as part of this process does expire before earnings. It's only if that one doesn't make us money that we have to look beyond that and work further through the process.
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