NaughtyPines

TRADE IDEA: GPS JULY 1ST 17.5 SHORT STRADDLE

NYSE:GPS   GAP INC DEL
6 months ago
One of the few earnings plays this season that meets my >70 implied volatility rank, >50 implied volatility criteria -- GPS             . It announces on Thursday after market hours, but I won't have time to fiddle with it then, so I'm shooting for a fill here. I looked at both an iron condor and a short strangle, but those didn't have enough juice in them to make them worthwhile given the price of the underlying. I'm also going farther out than usual for an earnings play, as I generally like to give straddles greater leeway to work themselves out with time (although I'm naturally hoping we get beaucoup volatility contraction post-earnings such that I can take it off fairly immediately).

Metrics:

Probability of Profit: 56%
Max Profit: $208/contract
Max Loss/Buying Power Effect: Undefined/~$350
Theta: 2.24/contract
Delta: -3.3/contract
Break Evens: 15.42/19.58

Notes: A short straddle is a short call and short put at the same strike ... . Unlike a strangle, I'll look to manage this at 25% max profit because the "profit zone" is somewhat narrower as compared to an iron condor or short strangle ... .
6 months ago
Comment: Didn't have to putz with it much; filled for $205 ... .
6 months ago
Comment: Pinned against 17.50 post-announcement AH. Ideal for this play, assuming I don't get much movement from there and there is also a volatility collapse post-earnings.
6 months ago
Trade closed manually: Covered this today for a $180 debit, yielding a net profit of $25/contract. Not exactly stellar, but freeing up buying power and reducing risk in advance of the long holiday weekend where possible ... .
Fabius965
6 months ago
I agree with your idea, but what about the gap (21.50_ 19:50) as you see it ???? Weekly chart he says ??? Perhaps a simple Weekly Bear Call Spreads to 20 $ Strike .....
Reply
NaughtyPines Fabius965
6 months ago
I generally play earnings nondirectionally, although I can understand having a bullish bias here given the chart ... . There are the actual numbers the announcement produces, and there is the market reaction to what the numbers are. Some numbers can be disappointing, but not "as disappointing as expected," so market reaction can nevertheless be to the upside. Conversely, some numbers can be "in line with expectations," but not the blowout the market wanted, resulting in a reaction to the downside. Since I don't know what the numbers will be, let alone what the market reaction will be, I take a neutral bias the vast majority of the time. Really, the play I'm working here is "implied volatility contraction" post earnings announcement and not necessarily movement in the underlying (although I naturally don't want price to move beyond my break evens).
Reply
Ideas Scripts Chart
United States
United Kingdom
India
España
Italia
Brasil
Россия
Türkiye
日本
한국
Home Stock Screener Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Billing Sign Out