Is it really worth trading earnings when you have unexpected moves that are outside of market maker move? (ATM straddle breakeven strikes).
Well... Let's take it from Robin the expert professional trader:
GMCR is at 53 right now. Calls are worthless and that's fine giving her some credit. Two calls at 83 (win), one put at 67 (big lose) and 72 against a 75 put (small win). I think she will be in for some pain tomorrow. NO way to roll her way out of this crazy loser.
She's at a max profit of +3 on the 75/72 times however many contracts she had on with this one. She's 14 down from the 67 strike... I'm assuming that's -1 delta per contract for $14 per contract... That's -$11/contract on 100 size contracts... I hope she listened to the Mantra of trading small. Let's put this into perspective.
She actually closed that out for $2.98 but $3 is close enough.
She got overall $1.25CR for doing this strategy and on the put side she is $11DB for this strategy... She lost 780% of the credit she received or she paid 880% of the credit she received. On one lot this is -$9.75 per contract or a total of $975.00. If she did this for say a "small" position relative to her portfolio of 10 contracts then that's -$9,750.00 lost on this trade for an initial credit of $1250.00 or a ten-fold loss on initial credit received.
For a person with a small account ($25k) following this trade this would have resulted in a 40% blow out on account. I am not sure if these guys know what they are doing but this is a great education point on delta and gamma risk.
Not a single one of these self proclaimed experts demonstrates an audit of profit or track record. For all we know they are doing papertrades on everything with nothing verified. Why? Well... check out Jacob the teen turn Hedge Fund's comment on these experts while being interviewed on TastyTrades:
(Everyone gravitates to writing premium until they get that one 5% loser that blows them out. $CMG. Jacob shorted, probably wrote, since beginning of 2015. Lucky he studied risk management because that rip up probably ripped him a new one post earnings)
They are all peddling subscription services! Just as https://twitter.com/IRSReporter says which is now becoming the pattern I've discovered myself. Even the self professed Erik Trofatter claims all his methods are proprietary but in fact it is just repetitions of market measures. The real pros figured this out before Black Scholes like Blair Hull and Thomas Peterffy who are now worth north of seven figures. These "genius" kid traders are no match for the real smart guys who already work for prop shops or automated trading firms.
So where do you go for information? Try books like Trading Volatility which is essentially ALL the useful content from TastyTrades without watching hundreds of hours of T&T jokes/nonsense. The only real forum of legit discussion is on EliteTrader forum NOT BigMike's. People there are experienced professionals with real feedback that isn't trying to peddle one single minded way of trading based on any one particular scheme. Find someone to bounce ideas with or off of and see what happens. ToS can be used for back testing strategies or trading 'live' in different trading atmospheres and historical times.
Review Dough's trades carefully and you will notice that they are almost always commission laden trades where the broker takes around 30% of the entire profit on execution. Why would you long put spread and then sell an OTM call up top? As the strategy moves in your direction the call starts to roll delta/gamma and if you want to exit the trade after it touches the upper leg of the put spread the call will almost always be bought back with a debit hence losing money... Unless of course your intention is to carry this through the Call's expiration then that might work but is it worth the upside risk of losing money shelling out for an initially worthless call? I've found out the hard way on this one today and a few days ago writing a near worthless put. The situation with the call is writing on an up gap and exiting it with a significant loss beyond initial credit. Put that I had experienced gamma risk and I found out live what it means to have gamma risk or pin risk upon expiration as I exited my position seconds before the closing bell... Was it a profitable trade? Hell no! But it would have been because the market rallied at the closing bell where the option I wrote was OTM. Worth the $40 on 10 contracts I wrote? Hell no.
When premium is cheap and there is direction... You buy. You don't sell. You only sell when other people are foolishly buying stupid rallies on stuff like FB, AAPL, TSLA, etc. Even when you sell you play the gap up on another month or at a different strike. But, what do I know.
Enjoy this video:
And a message from TastyTrades:
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