NaughtyPines

NEXT WEEK'S EARNINGS PLAYS OF NOTE: BIDU, GILD, TWTR, WFM, FB

NASDAQ:BIDU   BAIDU INC
14 0 0
With indices' IVR's mostly at 35+ ( SPY             being the current exception), I generally pay little attention to earnings plays from an options strategy standpoint. I just prefer to play the indices as a general matter; they're my bread and butter trades. Earnings plays can either work out fabulously quite quickly or blow up in your face if price breaches or tests one side of your set-up, requiring you to roll for duration and credit or to otherwise manage the trade post-earnings, potentially for several options cycles, tying up buying power and/or making you subject to assignment.

Nevertheless, as a premium seller, BIDU             , GILD, TWTR             , WFM             , and FB             all look like great candidates for premium selling opportunites, with IVR's in the 90+ area.

The way I play earnings is to set up my options strategy toward the end of the market day immediately preceding the announcement, with options expiring on the Friday immediately following the announcement if the announcement is early in the week (Monday or Tuesday) or on the following Friday if the announcement is going to be on Wednesday or later.

If buying power permits, I generally go with a neutrally biased short strangle; otherwise, with a delta neutral iron condor. The short call and short put strikes are generally placed at the 1 SD             line for the expiry, and -- if setting up an IC             -- with the long strikes at 3-4 strikes outside the short ones (the distance between the short and long strikes is subject to individual preference; the farther out they are, the greater the max profit is, but also the greater the max loss is; naturally, some underlyings have larger strike widths than 1.00 (e.g., BIDU             , distance between strikes is 2.50)).

Example:

BIDU             July 31 172.5/177.5/230/235 Iron Condor
POP: 78%
Max Profit: $93
Max Loss: $407
BE's: 176.57/230.93

TWTR             July 31 28.5/42 Short Strangle
POP: 76%
Max Profit: $91
Max Loss: Unlimited
BE's: 27.59/42.91

Notes: I think it's highly unlikely that I'll play BIDU             or TWTR             , due to the outsized moves they seem to display during earnings , which could easily breach the 1 SD             line one way or the other. GILD, TWTR             , WFM             , and FB             might be tamer affairs ... .
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