Tuesday, March 20, 2012

Here's an $FFIV trade i will make in 3weeks

hopefully you have read my lastest posts about adding credit put spreads to an ITM diagonal spread  AAPL - adding credit put spread to ITM diagonal 

i have diagonals on FFIV as well, with a DITM 2013 long call and an APR 115 short call. This strategy is the exception to my normal rule of not holding credit spreads thru earnings. Reasoning is that the short call provides a huge hedge if im wrong. Dont get me wrong, entering credit spreads to play earnings move is a valid strategy. Essentially setting up for a lower than expected earnings move and / or volitility crush. I would only put those on right before the earnings to take advantage of premium increasing in ramp up to the reporting date and only with stocks you are most comfortable with, as in the ones you know the most about. Not for just looking at earnings calender and entering trades on whatever reports the next day.

So Apr 115 short calls worth about $1600 each with stock at 130. I will be looking to enter credit put spreads at/ below that 115 short call strike. so either the 110/115 or the 105/110, probably day of earnings on 18apr. strike will depend on where stock is on that date. if its under 115 i will reevaluate. Why not enter now? because the price of that spread will likely increase because of earnings, so there will be no time decay. so stock could stay flat and just because IV increases the spread price goes up (loses value). so i might as well just wait till the last day to put it on. the 110/115 spread has an 80%probability of max profit right now.

Bottom line: will look to enter either 105/110 or 110/115 credit put spreads on 18apr ahead of earnings to go with the diagonals i already have

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