Thursday, April 12, 2012

$GS Options Action trade (mike) -4/12/2012

on tonights options action segment Video Clip , mike talks about the following trade for earnings:

Sell the April 115 put for $1.00
Buy the May 115 put for $2.90  -- using his prices
debit of $1.90 ($190) per one lot

this is a "put calender" . i like his explanation as to why to put this on, but i disagree that this is the stock to do that with. the premise that the front month option decays more rapidly than the second month is well known, but i think it is most effective if that front month is VERY elevated.. such as GOOG's today with the weeklies having an IV in the 120s vs 50s for the regular Apr options. with GS the April (front month) is only at 37 with the May's being 31... so will not have a huge IV crush after earnings since its not hugely high. I would expect you would need a move almost right to 115 for this to get you any decent profit.. The Trademonster analyse tab shows this trade with a 10lot to have max profit (115pin) of about $2300 with max loss the $1900... not the usual 10-1 type payout return for calenders.  I would not enter this calender.

second, trademonster shows earnings to be 17apr, before open i believe.. although he mentions the trade on tonights show, if i was going to enter this trade i would do it monday, stock was up $4+.. might be down $4 tomorrow or up $4 more tomorrow and monday... so the 115 strike might not be what you want to do then... always pays to wait till day of or day prior to put on these type of spreads incase it moves significantly in either direction from show date to earnings date.