Today's action was as rollercoaster-like as it gets. As we can see it on the 15 minute chart, the market opened relatively high and then dropped 2.5% and then within 1 hour or so it bounced back and down again. What's also interesting to note is the inverse correlation between the market movement and the volatility: When the market drops the volatility goes up. When the market falls, the volatility falls. It's also worth keeping in mind that the volatility often indicates which way the market is likely to move. For example, if the market is going up and the volatility is going up too then we can expect the market to fall in the short term.
So what's my trade for today?
I thought it's time to gamble a bit with an earnings play so I played #WYNN ( #WynnResorts ). Because earnings are dangerous it's best to stay as small as it makes sense and play both sides with a very wide strangle. What we are hoping for is that the price doesn't move much so that we can take advantage of the volatility crush (after earnings the volatility in almost all cases drop).
The stats
Trade Type: Short Strangle
Strike: $45 / 80
Expiry: 17 Jun
Delta: -1.9
IV Rank: 88.7
Premium: $1.47
Cap Req: $1232
Annualised Prof at Expiry: 115%
Let me know what you think.
Time to take some profit!
Closed at $1.37 for an annualised profit of 158%.
Could have hold it for longer as this was a very secure deal but wanted to free up some capital.
The outcome of the earnings was favourable to this trade but because of the overall market volatility, we have not seen the volatility crush that I was hoping for.
Rolling down the call side to $75.
Total credit: $1.78