Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Using a Triple Calendar Spread to Trade Google Earnings

By

Here, a review of some of the data that an options trader should consider prior to constructing an option trade in order to profit from this earnings event.

PrintPRINT

Calendar spreads are usually constructed by selling the near month put or call and buying the same strike in the preceding month. In this case, note that the November options trade with substantially higher implied volatility than do the December options as a result of "bleed over" of the elevated October volatility.

The Google Triple Calendar P&L curve is presented below:


Click to enlarge

This trade is short term and is designed to be closed on this coming Friday (10/19/12). Note that the break even points for the trade are around $670 and $840 respectively. These break even points are outside of a double of the expected move. Based on the current implied volatility driven probabilities, this trade has an approximate 90% chance of successfully producing a profit.

This is not the elusive "free money" trade either. Since we have discussed that trade for several weeks, I think the reader gets the idea there is no such thing. Option trading success comes from constructing high probability trades and executing these trades in sufficient numbers that the statistical law of large numbers delivers the predicted success rates.

A corollary of this is not to "bet the farm" on any one trade. While we typically choose high probability trades, there is no such thing as "free money" and a low probability event cannot be allowed to curtail your trading career.

Happy trading!

Editor's Note: JW Jones offers more content at OptionsTradingSignals.com.

For more on options trading, take a 14 day FREE trial to OptionSmith. Get access to veteran options trader Steve Smith's portfolio along with emailed alerts and strategy with every trade he makes. Learn more.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE