Yesterday, we placed a speculative options trade ahead of today's ANF earnings announcement. Wanted to share the trade ahead of the news.
SOLD -10 STRANGLE ANF 100 (Weeklys) AUG5 14 50/39.5 CALL/PUT @.45
Hopefully, this will allow us to brag about how we made $450 in 24 hours with the help of Chaikin Analytics. LOL.
Earning trades are mostly about selling speculators and hedgers overpriced options ahead of big news like earnings announcements. Chaikin Analytics helps us make a directional or neutral bet based on what the Power Gauge tells us. Its metrics help us weigh insider, short seller and analyst sentiment ahead of the news and we can quickly assess company valuations and management's past earnings track record quickly too, Plus, we have the technical evidence that points to how institutions are trading into earnings. Chaikin Analytics Power Gauge is like having your own private analyst and prop trading desk right down the hall from your office.
The intel is that ANF carries neutral to downside risk into earnings So we've structured a trade that will pay us even if the stock makes a larger than expected move. Price would have to fall $5 to the downside or explode $6 to the upside for us to be losers. Normally, selling options 2 days ahead of expiration at these distant strikes would pay us a nickel if we were lucky. But ahead of earnings news and with over 100% implied volatility, the options are priced for a substantial move of close to $3 one way or the other, but within an expected range of about $3.
Trading naked options isn't for everyone, and it involves theoretically unlimited risk. But even if the stock were to move 2 standard deviations to the up or downside (5% chance of that statistically), we'd still earn a penny or more on the trade. The greater risk in holding naked options would involve geopolitical news or stock mark crushing news of some sort, so really no more/less than holding stocks it would seems to us. We just keep our position size reasonable. Lots of little high probability bets diversified over time and price is how to make money with options selling strategies. Let's see how we do on this trade.