The biggest news today is the 35% drop in NFLX, which dragged down many of the other tech stocks.
It feels like we are just witnessing the repeat of the dotcom bubble 22 years ago.
For this reason, we have to be super careful when trading tech stocks at the moment.
What's my trade for today?
Although I generally stay clear of earnings plays, I could not resist the temptation to try my luck with #AA ( #AlcoaCorp ), which is in the aluminium production space. The stock has skyrocketed over the past few months and the IVR is also quite high. I selected the May $65 / 110 strangle. Both legs are less than 10 delta so the trade has an 85% probability of profit.
The stats
Trade Type: Short Strangle
Strike: $65 / 110
Expiry: 20 May
Delta: -8.3
IV Rank: 43.8
Premium: $1.5
Cap Req: $877
Annualised Prof at Expiry: 208%
Couple of adjustments:
https://www.tycoonitos.com/community/market-comments/market-comments-20220414
https://www.tycoonitos.com/community/market-comments/market-comments-20220419
What's your thoughts?
Time to exit this position with a bit of profit.
I had to wait 4.5 months for this trade to work out.
Closed at $1.18 for an annualised profit of 17%.
What was planned to be a quick 24hr earnings trade turned out to be a battle.
Now that the price dropped to around my strikes I nearly closed my AA position at a scratch after rolling it relentlessly since Apr 20 but then decided to sacrifice a good portion of my credit instead and convert my straddle to a Sep $45/57 strangle for $3.87 debit.
Total credit: $1.53.
Rolled to Sep $50/50 straddle, which cost me $0.68 debit.
Total credit: $5.40.
Rolled down the call side to $45 for $1.52 credit.
Now I am $5 inverted with it.
Total credit: $6.08
If the stock bounces back between $45 and $50 then I will be able to close it for $1.08 profit at expiration.
Rolled down the call side to $50 for $0.73 credit.
Total credit: $4.56
This one is really challenging me :)
Rolled to Aug $50/55 strangle, which cost me $4.35 but reduced my risk substantially. I still have a bit of credit in the deal.
Total credit: $3.83
Rolled down the call side to $55 for $1.24 credit.
Total credit: $8.18
Rolled down the call side to $60 for $1.28 credit.
Total credit: $6.94
Rolled to July $60 / 65 for $1.61 credit.
Total credit: $5.66
This trade is really challenging me. :)
I rolled up the put side to $60 for $1.15 cr.
Total credit: $4.05
Rolled out to next month and lowered the put side from $65 to $55.
This cost $3.25 but lowered the risk by $10 (moving the put side down).
Total credit: $2.90
Rolled down the call side to $60 so this is now inverted (the call side is lower than the put side).
Total credit: $6.15
Rolled down the call side to $69.
Total credit: $5.22
Rolled down the call side to $75.
Total credit: $4.29
Rolled down the call side to $77.
Total credit: $3.93
This trade is definitely not working out as hoped :)
I rolled down the call side to $80.
Total credit: $3.43
The earnings came out but because of the overall market conditions the volatility didn't crash (after earnings the volatility normally drops significantly making the option values also drop).
For this reason I couldn't close this trade for profit today. Instead, I rolled down the call side to $85 for $1.34 credit.
Current position: $65 / 85 strangle.
Total credit: $2.84