In this week's episode, sprocket888 is joined by viperxl007 to look at playing earnings with options. Earnings are a binary event where volatility builds leading into the event, and then post the event, volatility collapses. This is an excellent setup to play with options. The play that we look at in this episode is selling the option premium. sprocket goes through his checklist of evaluation criteria before he chooses to play any particular event. There are seven things he considers, three of which are dealbreakers. The upcoming earnings of $AMZN are the underlying used to demonstrate the practical application of these items.
- 00:00 Disclaimer
- 00:19 Intro
- 01:22 Looking into the practical application of premium selling around earnings
- 02:17 Options earnings play criteria to consider
- 03:15 Consideration 1: Liquidity is KING, first gate; is it liquid?
- 06:14 Screener used to filter for plays (high level)
- 09:02 Consideration 2: Historical Volatility elevated?
- 11:52 Consideration 3: Position size, is it appropriate?
- 13:26 Option earnings play is NOT a play on price; it is a play on volatility
- 16:32 Graphical picture earnings and volatility
- 17:39 Nice to have considerations before the play
- 18:15 Consideration 4: Is the spot volatility high enough?
- 20:09 Consideration 5: Is Price in an uptrend?
- 22:15 Consideration 6: Are you OK with owning the shares?
- 26:18 Consideration 7: Does PA support the strikes?
- 27:07 How to read the option chain
- 31:30 There is a tradeoff in premium volatility vs. time. You have to assess this for your trade thesis
- 34:50 $AMZN Price Action evaluation by viperxl007
- 40:51 Don't lose sight that his play is about volatility contraction
- 41:13
- 42:32 Recap on the checklist for using options to play earnings
- 46:20 Conclusion: Options earnings plays are about volatility contraction
- 47:49 Outro
Join Blockhead Traders in our Discord: https://discord.gg/89Zywff
Follow sprocket888's trades: https://www.thetagang.com/sprocket888