Follow-up to yesterday's blog entry: Those out of the money naked call options I sold into Autodesk's earnings expired worthless yesterday. I kept the credit of $50 per contract I received on Thursday after selling 6 September $60 strike calls. Total profit: $300 minus commission for entering the trade.
While selling naked options is the riskiest of all possible trades in theory, I had the wind at my back in many ways. The odds of my success were over 95% based on the close to $4 (2 standard deviation) price gain ADSK would have had to make to arrive at my short strike. High implied volatility inflated the option prices into the earnings announcement, so the return relative to risk was high (Even if the stock had made greater than a 2 standard deviation move , the resulting loss would have only been about $200). Finally, Chaikin Analytics gave me added conviction that I was on the right side of the trade. ADSK's high price to sales and high price to book ratios, industry group weakness and negative money flow were "tells".
Next week, we'll try to ring the register on a few more "fast money" earnings trades. Any time someone wants to overpay for an option where the probabilities are stacked against the buyer to begin with and Chaikin Analytics gives me an added edge, I will gladly assume the risk and the sell the speculator the dream.
While selling naked options is the riskiest of all possible trades in theory, I had the wind at my back in many ways. The odds of my success were over 95% based on the close to $4 (2 standard deviation) price gain ADSK would have had to make to arrive at my short strike. High implied volatility inflated the option prices into the earnings announcement, so the return relative to risk was high (Even if the stock had made greater than a 2 standard deviation move , the resulting loss would have only been about $200). Finally, Chaikin Analytics gave me added conviction that I was on the right side of the trade. ADSK's high price to sales and high price to book ratios, industry group weakness and negative money flow were "tells".
Next week, we'll try to ring the register on a few more "fast money" earnings trades. Any time someone wants to overpay for an option where the probabilities are stacked against the buyer to begin with and Chaikin Analytics gives me an added edge, I will gladly assume the risk and the sell the speculator the dream.
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