Stop Guessing Direction in Earnings Trades

It's one of the few parts in the tiny bits of the market where still retail investors might still have an edge. >> So I like to either make money or learn something. I'm willing to go for a 3x return and I'm willing to accept 100% loss. >> Good morning, good afternoon, good evening and welcome to the live this time with earnings trades as the topic. And yes, it will be run from three Different time zones with the guests from both USA and Europe and myself currently in Daang, Vietnam. We are in the middle of the

earnings season and boy can that be exciting for an options trader. Hence the topic for today's Theta Live. I'm John Sunland who runs the Theta Profit YouTube channel. I have a long career as a journalist and communications manager before I took an early retirement last spring. And now I spend my time trading options and Running this YouTube channel. Let's bring in the three guests. All are experienced in trading earnings. Hello everyone. Um my name is Daniel and um you might have seen another video I've done with John, so I will keep it very brief. Um

I'm an options trader and um I've specialized in volatility tradings and one of um these trades are earnings and I'm very happy to be here. Christopher from Vienna, Austria just south of Germany. two countries only Divided by a common language as they say and uh I've only started trading options seriously about a year ago but very quickly actually switched to full-time uh to it and I might approach trading maybe a bit a little bit different than many others because I'm on the belief that you can always make more money but you can never make more

time and learning. So this is what I focus on in how I trades and this is also why I like trading earnings. >> Hi, my name is Eric. I live in Utah in the United States, which is about the same size as the United Kingdom, but it has only three million people. I retired from my long business career three years ago, and I taught myself to trade options since then. While I was working, I was a long-term investor, so I come to it from a perspective of having a long-term portfolio as well. >> Thank you.

And uh both Daniel and Christopher and Eric will soon present How they each trade earnings. But uh before that, a bit of practical information. First of all, uh this live stream is organized in cooperation with earnings watcher, a platform that helps options traders identify the best earnings rates. It's an amazing amazing tool actually that builds on historical data of how different stocks have behaved around earnings events. So I do recommend that you check it out and earnings watcher does offer a 33% Discount on their annual plan for the theta profits audience. So you find the

link to the discount in the description and at the moment also on the screen. Let's get to the presentation. And the first one out is uh Daniel and Nicolitis from Germany. And I've asked him both to give some kind of an overview of earnings trades, but also of course how he trades himself. So floor is yours. Thank you, John. And hello guys again. And I'm very happy that we do this um the three of us here because um you get multiple um views. But um let's um dig into that what we are doing in earnings

and um why it is so good to trade earnings. And um I just put in the basic most basic information for those who haven't done earnings but maybe some information for others who have been trading and earnings and want to um take the next step. So um what are earnings really? basically um they're not a Directional bet. Um they are a scheduled um event and um option price um options don't price the direction really. Um they just price how far the move would be. Maybe you've heard of the expected move. I've talked a lot about

the expected move but um with earnings the expected move is what the market expects to react react to. And um the problem is that um a lot of long-term investors, especially um traditional um investors um they want to Hedge the portfolios and that's why you normally you don't trade earnings. Um a lot of people just sell puts because puts are always have more um premium with them. Here you also have market makers and um implied volatility spikes up. I don't want to deep dive what options are. I think you know that that's why I just

assume you know what implied volatility is and um due to this um you're um rising so the risk premium um we can trade this volatility because We have a very temporary very short window where everyone is focused on that stock and um basically you can take advantage of that. It's one of the few parts in the um tiny bits of the market where still retail investors might still have an edge. um basically and um you can get some premium out of it. Um to ask to um do a very general give a general approach um

and um basically I mostly um trade short Vatility. will look into that. But um I also do um long Volatility trades especially going into earnings IV rush or um two weeks out sometimes especially to hedge my portfolio with it without buying um VIX options. What we want there is if we have an expected move let's say of um $10 and um we we've seen in the past that moves 12 um in average and we see the positioning accordingly we would um want um basically to go long vault. So we trade out of the expected rules.

Shotvall is the other side which is Maybe the easier trade if you calibrate right because what you always have applied volatility rises that's why um the prices go up of options so IB ramps up and um when the earnings event happens the results are the volatility deflates so that's why you already got part of your premium back which you have sold there. So you normally do this with iron condors or iron flies. We will look at that how we do that later. And um I love calendars, time spreads. I also do Them on the earnings

event. I will keep it simple today. Um I trade um calendars for earnings before the earnings and sometime if I see a mispricement and um believe that the option will be repriced before we go to the earning. And um basically you get paid for fear. But um this is what you do normally with options if you sell them. Why short volatility works? Um we'll deep dive into that today. Um like I said institutions they buy protection and um In the end basically because IV collapses um and you normally statistically stay in the implied wolf with

a lot of um a lot of um earning results um you're able to collect this premium and um if you calibrate right and you basically um on the long term have the mathematical edge on your side and this is what you want. you you don't want to overtrade. You just want to trade the way that the math works. Nothing else matters. And um you might Have a season which doesn't work out but on the long run on 10 20 100 seasons if you have an edge there and this is what we are going to talk

today. Um I use earnings watcher. Um the easiest thing would be just to see how price has opened and how it has closed and um take this as an average but earnings watcher takes the next step. It looks at the intraday max max maximum move and um this is what we are afraid of on the one side if we areing short Volatility because we might get blown out out of our position. But if we know what the end um move is on average we can also see that sometimes the move gap there's a gap up

and um in the end of the day everything is fine or we can sit that out. That's why I look at both of these metrics but mainly because if you look at options um you should see that there's a risk with it and you should always look big is the risk before you look at the reward because the reward is Bigger the bigger the risk is without risk there's no reward and um that's why um earnings watcher shows how the price can run um during the day and that's why helps us calibrate the right way

to avoid blowouts that's the a lot of winds um little blowouts and um I use a lot of other metrics and um one of the most um important metrics for me when I'm setting up um earnings trades um are looking what the market has positioned itself. So um gs I don't Know if you know about gs um it's basically um um the hedging um of the market and where the levels are. I will show you something live afterwards and um I want to know how far the price can run before maybe the move is damp

damped or um the move will amplify. We have a level where there are a lot of um sold puts and um basically market makers have bought um puts and they will have to do something and that will have to let the price run and this can be Very bad for you if you have your positioning there. So this helps me basically look again at my historical calibration and adjust and also adjust intraday um when the earnings event has happened and I see how the market reacts and um if you have questions on that we can

deep dive into that but basically um the core strategy is the iron um fly and the iron um condor and that's why we calibrate um right um basically the short strikes and see how far we have to Go with the strong options to collect enough premium but also basically to be safe and to calibrate um not only um the move but also see what the market has um prepared for us. We'll put it into a very simple um into three very simple um cases very easy. we have a stock which is at rates at 100

and um if we have a very strong environment. So basically you know even if the earnings event happens in the beginning we just look at the volatility Collapsing but afterwards these kicks in because a lot of bought and sold options there and if basically they are at the money at 100 then the dealers will dampen the move which is good for you. If you sell iron flies and you need then you just need tighter wings. You don't need to go further out because the further out you go basically the cheaper the long options uh get

but the bigger is basically um the gap and um the loss you which can Happen to you. So you always need to um basically um adjust and um it's not only important to know what happens with the ivory brush and how much the statistics tell you what will happen but oh you set up calibrate right before so management starts before the earnings result. If you have um let's say at I call them walls here um or reaction zones if you have a lot of um olden board options at 95 and 100 basically then you might

go for an condo because even if if the Stock the money pay the most um basically you should put your shorts there because the price is more freely and move more freely there or will be drawn in because these um zones also mainly react act also as magnets and basically as support and resistance but in a technical place and basically if you have a negative or very weak um gamma structure this means um dealers will chase price and that's why I will go sometimes follow the calendar Especially if I um look at the term structure

before um and see that there is a shift coming and I would go for wider iron contest maybe um two standard deviation or three times the premium. So with much further ado, let's um dive into that and I will um change um so you can see what I'm doing here. Hope everyone can see my screen. Um we're here at earnings watcher and um we are at the most analyzer tab and I've prepared for you two um very very simple And very boring stocks which which explain everything very well. Basically on the one hand we have

Coca-Cola and we have McDonald's and I to show that um they don't report this week. I didn't find something which is very easy to show. Um and I know a lot of people like to follow things. So you have some time to think this through and um maybe follow this um not the trade but the whole idea. So if we are in the moves analyzer what does the moves analyzer Do? Um you see a lot of other stuff here but it shows us which moves we did have. So for me it's always from the big

perspective to the small perspective happened in the last years because sometimes stocks do change also Coca-Cola which is a boring stock let's say it like that Warren Buffett stock if you want which will pay its dividend but it doesn't blow out that much but if we take the longer perspective we will see it has an average move of 2.9. We go Just to the two years we see it's 2.8 tiny change but is for a stock like this it is a change. We go back 10 years you will see it is 2.9. Basically we know

but basically that we be doing great if we stick around 3% and we can collect enough premium there and basically um not get blown out. What also is important is to look at um how many times the actual versus the implied move um how many times has there been a Beat look at the last eight quarters only here. only three times. Um basically um Coca-Cola the intraday move ended up um outside of the um outside of the implied move. But the good thing with Coca-Cola is if you look basically at the end of the day

moves. We can do this here in the drift lab. We can do that later. You will see that it normally tends to drift back into the implied move. So basically isn't in in morning if there's a gap up Or during the day you look at the positioning and then you sometimes basically you with a little adjustment you can still get your premium or don't take a loss. This is very important for us to know. And another thing is the moves direction. Does the past tell anything about the future? If you look at history it does

sometimes but you can't always predict the future right from the past. Um but we know the stock tends to go up. Um so if I had to skew Um I would skew to the upside if I just use this data. But if I also use um gamma levels and basically intraday change of u the gamma positioning we look at the dex too you later what the dex is might go and um skew more or less and this is something we are going to do right now evolving for a very brief um minute to another tool

I'm using um is called Mantha Q this they provide gamma levels and much more and basically um Coca-Cola Is reporting next week so we will discard um this expiration here so we would be looking at the 13th of February for our expiration we see here at any negative change which means a bit more stabilizing but what I'm interested in where is the high volatility level so where do we go from positive to negative gamma this This is important how moves happen and more importantly where are of calls which might act basically as a support as

a resistance and where A lot of puts which act as a put. So this is something next to the roughly 3% we have at the back of our head. This would be maybe possible short strikes we can put our iron condor or our um basically um iron fly. So let's go back to earnings watcher and try to set this up. I know the prices from this week it will ramp up maybe we will get more premium but for the sake of it um basically Coca-Cola is a very nice example where we can show you a

lot of Things because basically it has been a winner for a lot of times. The yellow line which you saw was nothing bad. It was something good. Basically, it showed you that this was an um strike where there is not a lot of liquidity. And this is a very important part. Liquidity is really really important because you don't only want to get into trades, you need to get out of trades. And if you pay more to get into a trade and then you can mate with a Trade and basically you have already booked a loss.

Basically um the easiest thing is to go to the um already set um and prepared um dashboard here. We will go out um to the to the next expiration. That's we need the 13th. We already um it was smarter than I was. So I told you 3%. So we could sell or straddle here if we would like that. uh they like this as a reference point so I know what happens with the fly. I'm collecting $2 and a half dollars and then basically You remember um the numbers from before. We can look at this afterwards

but let's go to the flies. Do we find a fly right away which sits outside of these 3% and gives us enough? Maybe not. But let's start with this. It's 2.4 2.7. And you remember I said the 77 and 72 are some good numbers. So let's see um what happens here where basically where would be taken out. So 77 we're already quite safe here and 72 basically this is not that safe. Um it's Something I we wouldn't do. So let's clear that out and let's keep it easy. So you see this is a skewed. Basically

we would go to the 80 here. We want to keep it very simple and the 77 think of it and basically basically you put yes very sorry for that. Click two This looks a bit better here. So Basically we don't have much um room to the upside. We would again um adjust that and basically we have a high likelihood of success. We have a lot even on the downside and basically we see the risk and reward is not that good. So that's would have to adjust that. Basically I don't want to um take up the

time of the others. um this would be a trade I wouldn't take like that because we know two things and that's why it's Important to see the things just don't take numbers and put them in. This is a trade where we know um how the market has positioned itself how it would react but this is a trade we would have to adjust because historically we normally tend to go to the upside. So basically I would try to go to the 3% move on the upside and maybe to only a 2% on the downside. So we

would collect a bit more premium and we would be more safely. >> Thank you very much. Uh Daniel, I I did Put out another live poll and we'll take just a very quick look at that that one the results there. I we asked how do you usually approach earnings? Well, the big majority here is still figuring it out. So I hope that this session will make it easier for you. while there is about one/3 who is uh saying that they have no directional or volatility plays. So that's a bit about that. Uh let's bring in

you and now Christopher and hear how you trade earnings. >> Yeah, gladly. Thank you very much. Maybe very short about my background. So I was into options and trading actually already 20 years ago. Um however there were not really any platforms back then and when I studied it was basically a coin flip between computer science and risk management. So when I flipped those I flipped that coin and ended up 20 years in software development but was lucky enough to um start a company and have a quite successful exit. Um stayed Four years there built that

department up for for the new buyer and I had a quite comfortable job. Um but it was not so satisfying anymore when I decide when I found trading for me and uh switched trading full-time last year as I said. So for me it's um maybe not as experienced as the other two speakers but I have a very uh distinctive approach I think here because I always want to maximize my time and this is also why I like trading earnings a lot Because earnings basically give you a opportunity to trade in a very accelerated market. So

I like to either make money or learn something ideally both. Uh but that would even take learning something above um making money. And earnings is just you put on one play. I do mostly short wall the night before, the day before and you're out the next day. And it's high volatility. There's a high implied move. Something is going to happen. Options are priced accordingly. And it's just um a great accelerated learning place. The buying power lockup is very short only for the duration um of the trade. But and that's maybe also why not that many

people uh in the audience trade it as much. It actually takes quite a lot of time to figure out what play to put on, what are the great earnings, what's in your favor, what's not in your favor. Uh it used to take me a lot of time to Research the um IVR history, the term structure and so on. So I then didn't play it as much uh until I started using platforms like earnings watches that give me uh that cut down the time on this research a lot. So what do I trade? I'm mainly trading

short wall due to all the reasons that Dan said get paid for taking risks and in a short wall long place this is typically the where the risk is higher and therefore you can get paid a bit More for taking on those risks. Uh but I actually do not trade the iron condors or iron flies because my main trading is on interactive brokers which is a quite high fee broker. Um and if I trade a narrow iron fly that might have a great um probability of profit but basically I'm hoping for $10 of profit for

a fourlegged trade with $4 of commissions already. I'm already fighting quite the uphill battle. Of course, the changes depending on your Broker and your commission structure, but I'm looking to have as a few legs as possible. I also want to have basically the maximum uh P&L. So, either full losers, 100% losers, 100% winners because that also uh limits the impact of commissions and fees on my position. And also the higher stock price the better because the fees typically are based on the number of lots and not on the on the price and the price of

the option typically goes higher with the Stock price that's higher. So by process of elimination that basically narrows down to mostly a calendar structure as I don't like to sell short strangles as I don't like to have undefined risk on earning place. I do that maybe on futures but not here. So my weapon of choice is the call calendar. by by default. So that's basically where you sell a shorter baited option that's directly after the uh the first expiry after the earnings Day earnings announcement and you buy a longer dated option. By default, I typically

look at at the money a calendar structure with a longer the same strike two to four weeks later and then adjust it. If I have some inkling of I just want to be a little bit higher, a bit lower, I may adjust the strike price and also I change the do a pick two weeks, three weeks, four weeks based on the liquidity. Often that I would go for um the monthly expiry which Is often more liquid. What does this look like? Um yeah, the calendar spread is in contrast to an iron condor fly a short

wall play that you pay for. So it's actually usually a debit trade because you pay the difference between the longer dated option and the shorter dated option. This the longer dated option is usually worth more because it's longer out in time. You pay the difference between those two. And it also turns out that This is your max risk which is always important in terms of sizing to look at your max risk. Right? What we want to happen is for this value difference between those two to widen as much as possible. This can happen by either

the short losing a lot of value while the long keeps it or both gaining value but the long gaining value more. So this is what we're looking for. As an example, this is a trade from Monday to Tuesday. So Merc had earnings Tuesday before um open and I put on a call calendar. This is an example. We actually put it out on a little bit higher effort. um it's more likely that Merke will go higher than lower, but it doesn't really matter. I will show you also the result if you would traded it at the

money. And I have the 120 strike uh with a short expiry was this Friday and the long two weeks after that. And now the most interesting part is covered up. I'm not sure John if you could remove the questions. Thank you. So what I want to show is down here we can see the two different IVs. So we can see the front one for this case when I put it on I put it on quite early because I didn't have time later in the day was at 54% versus the later one is 31%. And then

I took actually another screenshot just before market close on Monday where you can see also how much this um what even rose um throughout Monday. So this was basically 4 and a half hour 4 hours later it went up from 54 to even 64%. So this is also Dan shortly mentioned the term structure that I look for to give me more conviction in the trade the further oh the higher the ratio of the front month to the back month means the more overpriced the front month is and we expect all these shoes to come out

once the earnings happen. So remember the day before earnings 64% and 33%. What happened? Well, there was an earnings announcement. It didn't look too well. It was here. It looked like the stock went down. Uh market was disappointed. I was convinced. Okay, it could it's going to be a full loss. But as often things turn around in earnings. It jumped up in the first candle and directly into our profit. funnily enough throughout the day it actually came back down to I think almost half or like a third of the price which is also very fun

why I like To play earnings because it's it's it's just not one move but often it bounces around and it gives a lot of opportunities to make money so in this case we can see not only did it move into my tent would have mattered that much but the front IV halfed so we went from 64% to 32% the back month from 32 uh 33 3 to 22. So basically the front one halfed. So it was the over price was reduced by half and the over price of the back one was only reduced by a

Third. And this is what gives us a lot of uh money vector. So this is how I closed it out. And what I like is I put it on. It was very clear. I put on my calendar. It took me maybe one or two minutes. Next day I saw that I took it off and taking the screenshots for the presentation today took me more time than the whole trade. So the return on time investment is really good term uh the return on mental um headsp space uh investment is really Good and this time it also

worked out that the profit was actually quite good over 100% from what I could lose. So I think that's my eight minutes up. Maybe just one more thing. I love the calendars because I can use them in a lot of other trading that I do. They are very complex beasts in practice. It's never like what the models tell you. Um it learned I also like to do diagonals if liquidity allows and they use it a Lot in for example mass or my my weekly trade index trades and so on and earnings is just a great

way to have this accelerated learning how calendar structures and diagonals actual actually actually behave. Thank you very much, Christopher. And we had another live poll out there and that really uh where we asked which earning strategies do you trade most often? Well, basically people are answering either iron condors or Calendars as you just went u reviewed Christopher. Were you surprised about these results? M yeah I think those are most the most straightforward iron condors is what a lot of people know and basically the non-directional stuff that's also not surprising how it turns out and calendars

because they have a lot of upsides in terms of what I just explained with the IV crush >> of the front month Thank you Christopher let's move to you Eric how do you trade earnings >> well thank you John I do everything that Dan and Christopher er have already mentioned uh but I tend to take more directional plays. I as I mentioned earlier I've been a long-term investor for a long time and I've got about 75 stocks in my portfolio and I know quite a bit about all of those companies. I read about them. I

follow the earnings reports. listen to the conference calls. And so I frequently have a directional bias. And in those cases, I will either uh buy put spreads, buy call spreads, sell call spreads, sell put spreads because I'm comfortable with uh with bigger swings. I'm willing to go for a 3x return and I'm willing to accept 100% loss. So that's probably not something that most people are going to be doing, but that is one of the things that that I do frequently. I also love to follow Dan's trades on Earnings Watcher because he does all the

hard work and all I have to do is decide whether or not I think that his thesis is correct and then I can follow along. We didn't talk too much about IV rush. So, I want to talk about Ivy Rush. This is when you buy a straddle or a strangle prior to earnings because if you expect the IV to increase faster than the theta will hurt your trade. And earnings watcher does a great job of modeling that. And it gives you an opportunity to Make somewhere between say four and 10% in about three hours. And

that doesn't sound very exciting for someone who likes to, you know, swing for the fences. But if you think about the fact that that T bill the risk-free rate of return is maybe 4% per year and you can make between four and 10% in two hours and you can repeat that say 100 times a year with maybe a 75% success rate. That is a very very interesting way to trade and your risk there is very low because As long as you get out before the earnings announcement I mean maybe you're looking at somewhere between a

you know two to 5% loss and maybe a four to 8% win on average. um that becomes a very interesting way to trade and you can take a much bigger size there because your chances of losing a lot are very very low. So it's quite fun to enter a trade at uh you know four hours before the close and then close it out for 5% 3 hours later and just continue To rinse and repeat that. Um, and since Earnings Watch is part of the sponsorship of this program, I want to mention that if you're new

to earnings, this is a great product because there's a daily video where the best trades of the day are explained on on YouTube and in Discord and you can interact with other people on the show and and talk about the trades and that gives you an interesting way to learn if you are are new to earnings. Yeah, there's a paper Trading feature and all sorts of other things that are very interesting. Now, I know I'm much briefer than my colleagues here, but I don't want to restate what they stated. All of their strategies are very

smart and very valid, but mine mine is more I like Ivy Rush and I like to take directional bets on the 75 or so stocks that I follow closely because I think I have an edge there. As a retail trader, I don't need to uh swing uh I I can get in and out quickly because I'm not buying thousands of contracts. And you buy a few contracts, stock goes the way you want to go, you close it out, and you move on to the next one. Um, so I'm going to keep my comments very brief

so we can hopefully have some questions uh from the audience and try to answer the things that are specific to the people that are trying to learn from us. >> Thank you. Uh thank you Eric. Um we have Uh I I added another poll and not so many people have answered but the question is uh uh what what's your typical max risk per earnings trade? And uh less than 1% of the account, 1.3% of the account or more than 3% of the account or you don't have a fixed rule. Well, uh, seems like most people

are so far are at less than 1% or 1 to 3%, but I thought, uh, we could start off with this, uh, you know, running this question with, uh, those of you in the Panel. Um, uh, let's start with you, Eric. What's your rule for what is your rule for how much risk you put are willing to put on on uh, each each trade you do? That's an excellent question and a good one to discuss. So I have I think about my portfolio in two places. I have the big portfolio that is a long-term trading

that is separate from the options portfolio. So the vast majority of my funds are long-term investing. So just just from The options portion of the portfolio on a directional trade like those that I like to do that I mentioned, I'll be somewhere between two and 4%. Because if it gets blown up and goes to zero, I don't want to be crabby to my kids and nasty to my wife, I want to be able to accept the loss without any trouble. And I I don't want to lose any sleep over it. If I'm doing something like

u an Ivy Rush trade, I might do 10% that that trade that I mentioned Earlier, which is uh you maybe hold for three or four hours because if I'm doing 10% of my options portfolio, but my my probability of loss is maybe 2% of that 10%, I'm not too worried about it. Um so it depends on the type of trade. If I'm doing a calendar like like Christopher was discussing, I I love those as well. I'll probably be in the two to three percent range. It also depends on my level of confidence. If it's something

like um Disney, which I'm in now, which I was pretty confident about last week, but so far I've been wrong, although it's doing a little bit better today. Um that's maybe a 3% trade because I had an my belief was that Disney would not move on earnings. I was wrong. It it went down 7% and now it's recovering a little bit today. So, I still think that trade, you know, right now it's slightly profitable, about 50% profitable. So, that's how I think about percentages. What about you, Christopher? I'm a lot lower than that. Um, so

first of all, the calendars tend to lend themselves either to 100% loss or 100% profit or 150% profit, anywhere in between. So always assume there's a good likelihood that that money is gone by when I wake up tomorrow more or less. And uh I'm in the nice situation that I have um well probably quite substantial capital. So I'm also not really swinging for the fences as much and the preservation mode. Uh I also have Various trading accounts and LC trading accounts and retail accounts and they typically go way below 1%. I don't think I've done

an earnings trade above. 2% uh max risk um on that account. Not even on all the accounts put together simply because I like to play all the statistics and the numbers and I'm not I like to trade small and often. But if I don't trade often enough compared to I don't know I do like 150 a day and I don't know how many futures and so on. I Can go a bit higher and if I lose like a full 2% with all my other trades, that's a bad day. So, I'm not willing to spend 2%

on a single trade on a single occurrence over a single night um on an earnings trade. So, that might be small, but if you do two, three, four earnings plays around every week and um you risk 2.5 or even 1% that's still a lot of money, a lot of risk at the end of the year. Daniel, What is your rule? >> Basically, um, with most and all of my trades, basically would go for 2% and if I have more confidence and especially with the calendars and other things I can adjust and um, there I would

even go um, if I know I will do a lot of um, trades repeatedly, I would even go to 6%. I wouldn't recommend this to anyone who hasn't been able to adjust that and to have a decent win rate and to have Mathematics on their because you might one or two seasons which don't work out. for people to one to 2% would be my advice and if you feel more confident with your strategy maybe after a thousand trades um maybe move up high earnings are one of my coreity strategies all right so all right so

let's go to the questions and um we have uh we have a few questions already in that we have will Probably have time for more than the ones we have. So just go to the Vivox app and uh use this session ID54982335 to ask your questions and it's great if you are clear if you are addressing it to one particular in the panel. The first one that is a pretty long question that I will just try from Edulu and I will try to read it out for those of you who trade short volatility for instance

the IV crush. Number one, do you typically let the position expire or do You try to close it after the event? I have often found it difficult to exit after the earnings announcements due to wide spreads and low liquidity in certain legs. Question two, I estimate that the minimum annual data cost required to run this strategy is around $3,000. Does that align with your experience? And three, on average, how many events do you trade per earning cycle to diversify the tail risk exposure? Do you Avoid trading highly correlated tickets? For instance, banks like GS, MS

and JPM and instead select only one from each group. That was three questions. I hope you can remember them. Uh, who would like to take a stab on this one? >> I I'm happy to answer all of them, but I've already forgotten what they all are. So, if you could ask them one at a time, I'd be happy. >> All right. So, first one, do you Typically let your position expire or do you try to close it after the event? You know, if you tried short volatility, >> uh, never allow it to expire. Always close

it. as as you get down to the end, there's just too much gamma risk and any crazy thing can happen. There can be a tweet from the president of the United States, there could be a crazy selloff in software stocks where they're all correlated like we're seeing now for for no reason. So, you just you don't try to Squeeze the last bit out when you've made a profit, you're happy with it, take it off. Don't don't be a pig. Pig pigs get slaughtered. And his second question was, I estimate that the minimum annual data cost

required to run this strategy is around $3,000 US. Does that align with your experience? Is that for one trade or or multiple trades? I'm I'm not sure. I think that it just depends on, you know, how much Money you have and how much money you can comfortably put at risk in the market. You never want to invest money that you need to eat or live because if you do that, you'll be running scared all the time and you're guaranteed practically to blow yourself up. Um, but you can put on a you know a trade for

$100 and you can do a lot of them if if you want. It just depends on on your situation. So that sorry that question was about The data cost um which doesn't really li I I think $3,000 is roughly what you pay if you want the historical options uh data of US stocks. Uh that's around um $3,000 if you want to do your own back testing for example. >> Um I think this is what the question is getting at. I don't do that because I'm not running my own back test and buying all that data.

Um, I'm rather looking for other resources that does have done some research. I basically only look for Two things. One is the history IVR and actually use things like market watches which doesn't cost you 3,000 a month uh a year um in order to get that and the other thing is the term structure which you can get for free in lots of tools. The third question was about diversification of the uh uh risk or how many events do you trade per earning cycle to diversity diversify the tail risk exposures? Do you want to add something

on that one as Well, Eric? >> Sure. I I uh think that it if you have an understanding of banks as as the caller's question suggested, there's no reason to diversify. If you think you understand the banking world, trade a lot of banking stocks. If you think you understand chips, trade a lot of chip stocks. I I but again, I come from that as a perspective of I have understanding of of the specific companies. So I would not think about diversification. I would Think about each event individually. Each trade is different. Each setup is different.

Is there anyone else who would like to add something on the questions that Eduardo asked? >> Yeah. So for the for the last one, um also I don't really diversify that there because I'm trading the volatility. It doesn't really matter matter the sector. However, if you would go with directional base for example, those tend To align. Um so the banks all go one of the each other. If one bank has a nice um earnings report and the market reacts well, all the other banks typically go in the same kind of direction. Uh that's not the

earnings place that I do. Uh but if you go in those directional plays, then uh yes, you should diversify. Meaning how I played it in stocks. I actually go to all the different banks if I want to be in banking. But the overall position is like my one position That I want to have. All right, I guess we will move to the next question which is from just a moment which is from Peter. Which earnings events over the next week do you pay the most attention to? Anyone with some good tips of uh what is

the best earnings to for the next week? I'm not there yet. I could tell you what I'm going to do when I get off this call after I see what's been happening with my open positions. I'll go into earnings Watcher and I'll take a look at the calendar and I'll look and see what's coming up. You can, you know, you sort by day, you sort by before market earnings and aftermarket earnings. You look at the expected booths, you compare that to your viewpoints and then and then you move forward. So with respect to my earnings

trades, I'm going to be doing the work for tomorrow today and the work for uh Monday on Sunday and like that. I don't go too much further. So I don't have any hot tips for that uh questioner. >> Anyone else? Yeah, basically we you can look if you want to do the short bowl and McDonald's I told you about. These are boring ones, simple ones. Um it's not about tips, it's what Eric said. Um I do weekly preparation and earnings watcher makes it easy to do that. Um but even more importantly, um you should always

before you set up the Trade and always have the trades, um in the last hour, 15 minutes of a day. And um I will also try to close them in the beginning and run if I see some directional um profitability there. The thing is um you should do your preparation if you have the time but um always check the actual data because things change, positioning change and um the option flow change and um believe you saw here on this video might not be valid next week. So um Always be onure with these things and um

yeah try to try to have um basically um data when you set up the traded in. The difficulty about planning ahead for next week is that the the market goes crazy on its own every day. I mean, if you were planning on software stock earnings trades for next week, now you know you're getting run over in the last four days and the whole marketplace is going to look different in the next day. And as a general rule, I would say that Suggestion, I think there are a lot of beatenoff software stocks now. So, I would

be looking for those that I think are likely to bounce because everything's gone down, but they're not all going to be destroyed by AI in the next three weeks. So there are going to be a lot of opportunities there. You just have to figure out what those are. But if you had asked me that question last week, I wouldn't have been able to answer it because those software stocks Hadn't started getting beat up. That's at least not to the effect that they have this week. >> They had deployed a lot of capital yesterday in that

same idea. >> Yeah. >> Excellent. Excellent. >> And a tip from you Christopher on this. Uh so this is why I like the earnings play a lot. There's not a lot of preparation that I do nowadays. So I Don't need to spend a lot of time. I can actually show how how it is how how I work. Basically I go to um just uh before close or whenever I have time for the day I just see what's up for tomorrow and if there's any opportunities. And for that also right now I'm using actually earnings watches

that you also mentioned at the beginning. either go to the data pics um or I'm at discord if Dan has some something already on the silver platter For me to book at or go to the wall scanner. Then I see okay tomorrow is maybe Google maybe Amazon. Um then I look at the IV RV and I think some was also the question how do I know the term structure right? So the easiest how I do it is just I use trading view a lot to look at the charts and trading view on the side already

at the bottom has actually the money I have term structure right there as a slope and it shows you um quite easily me I don't Know if you want to share this I can show that I'm sharing it right now um so this is for example Amazon that has earnings I think tomorrow so that's something I'm going to look at um and the term structure we can see down here so again that's like the okay 78% one week and 60% the next week. And I'm looking at the biggest difference here. For me, I would like

to see at least the 1.35 ratio. Great is 1.5 ratio and sometimes you get even higher, Especially nowadays with the the Max 7 getting three expireies a week. There's a lot more things you can do in calendar structures now. I'm actually quite excited for some more plays there. But basically, that's that's how I would go. I go to earnings watcher, go to data pics, full scanner, see what's for tomorrow. I don't look ahead day after tomorrow or next week at all. Um look at the term structure. Go into option thread whether I showed also before

and Um play with the curve that I want to have. Maybe even put on a diagonal. See, yeah, I want to take off the risk of the oops share this top instead. So um go into opt out. Look at again the IVs here. Maybe say h I don't like the downside um risk. Maybe put in a diagonal for example. And this is again something that's just really really nice. Put it on and tomorrow it's off. So I actually do let trades expire when they're full losers. Then they just expire somewhere and I don't care about

paying the commissions for the closing of a full lo trade. I I agree with that. I didn't I didn't mention that. I try to forget about the losers. You're exactly right. There's no reason to pay to get out of trade. >> Yeah. Although you should then forget about it. So what happened to me for examp what was it? Philip Morris I think I played earnings what was it like two quarters ago and they just tanked 15% or Something and it was just gone. And then you start thinking but I I still I mean the short

is worthless the long is worthless but I still have it. Maybe I can turn it into um a Pman's covered call. Maybe I start selling some shorts again. And it's never a good idea. It's a different trade. You would never put it on in the first place if you haven't had this leftover position. Um it costs you more. There's no uh expected value there and it takes a lot of your mental Space. So earnings, look what's tomorrow, put it on, next day take it off and go out and enjoy the sun if you have any.

All right, we'll get on with the list here. And uh we have a question for Eric from James Coats. Eric, what is the most common trade strategy that you use for Ivy Rush trades? Uh, I look at earnings watcher because I'm not smart enough to to model Ivy Rush, but I I'll buy it at the Money Straddle and uh I'll hold it for you maybe buy it about uh I'm trying to convert this to to Eastern time. Maybe buy it around um noon Eastern time and get out a little bit before the close. That would

just be that the straw. I strictly do IV rush based upon Ernie's watcher modeling. That's um the only way I would do IV rush. It's all there as Christopher said served up on a silver platter. You just Have to look at it. The key with those IV rush trades is you want to make sure that the underlying is liquid because if it's spready, you're going to pay too much to get in and you're going to pay too much to get out and you're going to find yourself five minutes before the close having to drop your

price until you can get out. And so you don't want to do that. So you want to look for ones that are highly liquid. The other thing is that I don't really get interested Unless they're modeling 9 or 10% profit because you want to have a fudge factor there in case the model's wrong. And so my goal is to make 5%. Um, and if I if I get to 5%, I'll probably just take the trade off because that's a guaranteed winner. In the last few minutes, you're never sure what's going to happen. All right, we

have a question that you touched on, Eric. So, I will let uh Daniel or Christopher uh respond. And That is, should we always avoid using stocks with not high options volume? What say you Daniel? >> Always um it depends how much you trade. If you have if you see an edge in a week on 20 stocks and um or 30 or 40 depends um then maybe not avoid it but play it very small but in general um with every trade not only earnings trades um basically liquidity is king and um I've repeatedly said that so

and a lot of people ask when can I get out Of and um especially in earnings trade Even if the stock doesn't move that much, um the prices are wild in the beginning. It's it's like like crazy. It's very interesting to look and you have to um train yourself of all not to panic because the most important part you have a plan which you made before entering the trade and and not making a plan while you in the trade. I know it's difficult sometimes. You have to adjust this. That's if you know what your loss

is. um be able to take it and especially with these illquid stocks and those ones um after the first 15 minutes market makers able to price you might get more liquidity there but um if you can avoid them if you find an edge with more liquid stocks if you are more used to um all these earnings trades then maybe you can get into um trading a bit more ill liquid stocks I advise everyone to avoid everything Below to 10k average volume. Um might get on these ones I would only do calendars. Um most of the

time with 30 days out um different than Christopher I like Christopher does a lot. Makes a lot of sense. Um especially if you are a weak play the week after. Um but um always try to look for liquidity because the cal can and maybe sit it longer. Um yeah would be my approach. >> Anything to add from you Christopher? >> So I think the problem for the question is something else. So and I had the same issue. Why would you even want to trade this? Isn't there enough other opportunity there? And when I started doing

the earnings, I had to do a lot of research. I was doing all the term structure. I took like I don't know two, three, four, five, six hours every week as a preparation for the upcoming week. And then I spent all this time and then I look at the table and nothing looks Great. But I already spent six hours. What do I get out of it? Let's just take the top three ones, right? And uh just to keep you busy. And we want to we want to trade. We are traders. um but shouldn't then still

take a bad trade. May it be because of liquidity, not the right term structure or anything else. So find also other strategies to scratch that itch. Um and don't try to figure out how could I make a strategy that has this illquid stock and maybe do an Earnings trade. >> Or if you love the if you love the stock, buy the stock. I mean, if you can't put it in the options, just just buy the stock and, you know, if you're right and it pops 20%, take your 20%. >> Yeah. Do a ride or die.

Just do a I don't know, a put credit spread if you say it is going to probably go up and just let it expire, for example. But again, there's probably other better opportunities and I know that you want To trade and sometimes there's nothing in earnings as well, right? There's a reason why we have earnings even where you can't even catch up with all the opportunities there and then there's a week where you better um travel to Vietnam and enjoy the beach, right, Jonah? >> But yeah, slippage will kill you. Slippage will kill you on

the liquid stocks. If you're if you're losing 10% to put the trade on and you're losing 10% to put the trade off, you're down 20% before the stock even moves and that you're just not going to win there. It's too hard. >> Yeah. Uh Eduardo has a question for you, Christopher. The bid ask spread on calendars can be very wide and can easily in eat into your edge except for a few liquid tickers. Do you enter the trade as a single position using limit orders or do you leg into it opening one Side first and

then the other. Uh I do limit orders and enter it as a single trade. I haven't found too much issue with that again because I don't try to trade every stock opportunity when it's for example also illquid. What can happen and actually the example that I showed with Merc even though it's actually quite popular stock and quite liquid I couldn't put on exactly what I wanted. I wanted to put on a diagonal above actually but the longer that Option did wasn't liquid enough on the strike best that I wanted. So I actually changed my structure

a bit and then they had the liquidity that I wanted with very similar tent to what I wanted. So I sometimes do these kinds of adjustments as in lagging in I haven't found much for these kinds of strategies that it makes a difference because if I put it in it basically always crosses the ask of the two individual ones anyway. And um I I don't see I'd rather pay the Additional scent or so that I have on the on the combo instead of the price moving in between. Um James is asking and I'm not sure

who this is directed to. Please explain further how you select your strike prices on an iron condor in particular the strikes that define the risk. Anyone? and >> you would have I would try my very best to keep it brief. Um the first thing is um which is Most important important for the movement um and for the but more important is to look at what has happened in the data. So if we see like Coca-Cola then roughly 3%. So you just um try to make the math. Um let's say we don't skew 3% up 3%

down and then if you want to have an iron condor um if you want to do a short straddle which I wouldn't advise and even on Coca-Cola um you might even um hold into that tent. Um but the thing is Um what I do later is um basically um we evaluate these kind of strikes and the short strikes I've selected especially for short well you can do the same for the long ones but you can evaluate them on what the market has positioned itself so you just know what happens if these strikes are reached that

is the important thing and yeah I also did mark and um basically and this one of one of the nice ones I did it with a different structure. Um I was late so I didn't Share it with the other um users and colleagues. Um but yeah, I looked at it and I adjusted it a bit during the day and basically I had live data. So um I could um basically um salvage a bit more because I saw the drop I could adjust the strikes and um I knew when we went up um might be a

place where this stop and um I could salvage a bit more. So this was a very nice trade. But Marcus um more volatile than you would think in the beginning. Yes. And Eric's watcher Showed that um basically in the historical data >> we have a question about calendars which I guess is also for you Christopher. Uh on calendars where we try to benefit from the increased volatility before earnings. In your experience, how much time before earnings do you enter the trade? Thank you very much. So, as short of time as possible, not necessarily because the

AV goes even up even further, which it does, but because I want uh to be centered, right? So, for example, I took the trade that I showed before actually like 2 hours after market close, after market open before. Ideally, I want it just before market close, but I didn't have time that day. So, it's fine to even be there earlier. But the merc moved from I think 112 to 113 114. So, by the end of the day before even earnings, stock price might be somewhere where you don't want to have it. So with these kinds

of plays Mainly the last minute well maybe not the last minute for the um also for the spreads but m within the half an hour before market closed before the earnings event I put it on high as the V but also mainly because the stock price is where I want it compared to my position. >> Anyone wants to add anything on this? If not, >> there are strategies that that involve um putting the calendar on three weeks before earnings to attempt to take Advantage of the IV rush similar to, you know, buying a straddle the

day of, but that requires a different set of modeling tools and it's probably longer discussion than we're having now, but but those trades can work. But if you're interested in that, I would look only at highly highly liquid stocks. So mag seven and and things in that range because otherwise you're going to can get killed on slippage. >> Yeah. And also with calendar structures There's always the model and then there's reality. >> Uh generally you can say ah we put on a calendar it's actually positive Vega but IV goes down and the calendar wins. How

is that possible? Right? And there's always a difference on the different times and different strikes as well. how um delta and camera reacts but especially how IV volatility vulma and so on react a lot generally speaking the further out in time the more muted the Reaction is and the the one that's closer in time and closer to the strike the more volatile all these curves of especially the second order Greeks are and one thing is trying to understand it in theory and you can take all the modeling and push all the sliders up and down

and see how that moves but the other one is just seeing that in practice and how the market actually moves and how the market price is sitting because at the end of the of the Day IV is just means what the market is willing to pay in addition uh on top for that option and that doesn't have to respect any model it's just how the blacks and others tend to spit out the additional price um of those options at the time right so again this is why I actually like to play it on earnings because

it's just an accelerated market to get this experience in >> there there is one question in the YouTube chat. I will take in even though I said I will not take questions from there. That's for you Christopher. Do you use double calendars for IV crush effects? Uh I have done it. Um but I tend not to. Uh coming back to I like to reduce the number of legs. So double calendar again double the legs double the fees and commissions. Um it gives you a wider tent. basically instead of one calendar you to put two. Um

I do that a lot in other weekly Trades but not so much as on the earnings. It flattens uh goes down with the max profits and increases the fees. So I have done it before where I really wanted to play it but nowadays I have enough things on my list of possible trades that I just basically cherry pick exactly what I want to trade which is what I described before and double calendars that don't really tend to do much for earnings. We have only two questions left, so We're going to wrap up soon. They are

from Henry. Is it very reliable to look at gamma exposures of the market makers in the stock? How reliable is the gamma flip point? Thanks. Guess you can start on that. Uh Daniel. Yeah, as I said before, um basically um gamma reaction levels and delta exposure is very very helpful day trading or swing trading or whatever kind of trading you do earnings trades You have to understand is the situation show the secondary filter. It's an important filter but the secondary filter which will kick in after the IV crashes. it is reliable in general but with

earnings it's reliability starts again um after the IV crash happened um in the first couple of hours and um and you asked about the flip zone um the flip zone doesn't basically predict reversal. It just tells you where maybe the wolf Can be dampened above the flip or amplified below the flip. So above the flip you might have chop binning mean reversion. This is good for short volatility below the flip. Um these squeezes, trends, sometimes crashes and um basically yeah it it helps to know these things and um but if you want to keep it

simple and you don't want to um keep the trades on longer like you have seen with the others here, we try to take our trades off. We look too much at Losers. um use it for calibration mainly and um if you take up all the trades um in the first 15 minutes first liquidity has come back then you don't need to worry about that just have it in the back of your mind where things can happen and calibrate accordingly using your current um program or just use the options chain and um you will find basically

the solution you're looking at. So, do you mainly use it as a tool to Pick your strikes for your strategies? Um, or also to decide whether you actually want to trade it or even change the size? Um, it depends on the stock, the very liquid stock. Um, basically it's it's a secondary filter basically. Um, it might invalidate a trade or might reinforce a trade. So I avoided some trades and basically the positioning um showed basically that we would be maybe Amplified for a larger move basically and um but it helps me pick the strike yes

too and um it helps me manage basically especially on the other day this is something which I told you if you just do the regular trades and take off your trades you don't need to do that but um I let's say um I find a favorable stock and um I do 10 contracts on it and then I will take out 25% or 50% um very very fast if I see there are winners and Maybe the next 25% after some time and then I would let leave runners or adjust something but this is what I do

because I do it with all the other thing um if I can give advice um just put on the trades as a pack like um Christopher said and take it off as back don't try to stick too much with losers or look at them um they were losers when you looked at them before because you have accepted losses is what Eric said and um if they become winners be even Happier do something good for yourself or for your loved ones and be happy that you were have you in your curve of consistency >> what do

you I'm sorry to hijack but this is very interesting what do you think how much time do you have to spend looking at like this additional in terms of GEX data and maybe also I don't know options flow because I always I see a few people that have a lot of experience a lot more experience than me that use GEX to I think great effect uh but every time I look at it may it be for some SPX stuff or for earning stuff and also the option flows I see a lot of information uh that

doesn't give me a lot of edge is it because I need to spend a lot of time understanding that to actually do that because for me right now it seems that I have to spend so much time learning that that the return And the time investment for me is not really there to to learn it as much and I'd rather just put on More trades to get my statistical um EV out. It depends. I don't It depends. Basically, for me it is something it's combined things. um earnings as I said um is of my volatility

trades shifted from fat to volatility and basically um if you trade um uh you trade basically I'm move plus I'm adding the volatility I've learned all that stuff that's why um I have to come from the other side to Understand your question so yes if you take a lot of trades we don't need it but I believe if you understand that these things market behaves is what market does basically and how it behaves live and basically um it will help you with all the other trades because let's say you're earning just I don't know 20

25% if you're not experienced or from your portfolio of not investment we don't about investment about trading um what you do with the other stuff let's Say you are basically premium collector what a lot of traders are and you will trade VRP you will NVRP and the Zcores and IVZ especially to see which regime you are. So this helps you then you have to look at the expected move. Yes, you do with earnings. But in order to um to to um make this even better, you will want to know what the market is doing um

how market makers will need to react or if you understand these um mechanics, At least my belief, you can manage all your other trades better and why not use it then for earnings. But I'm with you. Um I spend as little time as possible. So I created my own pathway. Um I've worked my way through all that of understanding that stuff. Um so for me it doesn't take much more time. So let's say I I take a data p from earnings watcher this is something I will just take a little bit. If I look at

something else which is more exotic or I Don't see the edge right away on earnings watcher then pops up due to other factors. I would spend max 10 minutes on that. I have everything set here, you know, my exposure. Sometimes I will just look at the options chain. Basically, I will be honest most of the time if if I'm really in a rush, we look at meth and look at the options chain and then that's it for me. And um in one of my brokers, I have coded my own scripts and all the things There

in one line and just look at it and I'm doing a lot of trades. I know what to do not only for earnings but for all the other stuff but it's something you do and you get into and um yeah time in trade this is the important thing but also time lifetime for me basically it's not only time in trade but how much time do I spend with something and um in the end um we don't have enough time so if I can spend maximum five minutes on planning a trade um that's the thing and

Most of the trades have factored in the max loss. So, um I'm good to go and um I would have orders open and only adjust um or jump into things if I really have time, which I mostly don't have. So, everything is on automatic. >> I have two things to add on that, John, if I might. I'll be quick. One is that there are a lot of gamma services out there. So, >> before you start making decisions on gamma levels, make sure you've found a Service that's telling you the truth. A lot of them do

very naive modeling and and are not worth very much and there are a couple that are very good. Uh that's one thing. Second thing is with respect to unusual flows, I found that to be uh quite meaningless because lots of times someone will be buying a lot of puts to offset some other position that they have and you don't you can't evaluate flows without understanding the context. and you can't understand the Context because you can't figure that out. So, I think that could be very misleading when you see people on on Twitter saying that someone

just bought, you know, 100,000 calls on this. You have to take that with a grain of salt if you don't understand what the rest of their position is. All right, we'll go to the last questions and uh answer that very briefly. This is also from Henry. I use options to protect the stocks in my Portfolio around earnings. What techniques would panelists suggest are best suited? Lately, I've been doing colors with different expiration dates. Any better suggestions? Anyone who want to take a very quick stab on this one before we close? Don't. That's that's my trick.

If you want to have the stock, have the stock. If you want to trade the option, trade the options. But if you like the stock and Have the stock and then you pay for the protection, you diminish your return from the stock while not gaining really much value from from the option. I think there are very little um more institutionalized use cases where it makes sense um which I think is not really profitable for most retail traders. But >> I I agree with that. But I will say that if if uh you are worried about

a decline rather than thinking about protecting Your position, you know, buy a put spread so that if the stock goes down, some of that is offset. But I don't think it's realistic for nonprofessional full-time traders who don't work for big desks to protect their positions effectively. >> All right, our time is up. Uh as mentioned before this uh this live stream was organized together with earnings uh watcher and uh there is a discount uh link that you if you want to Try earnings watcher you find it on the screen now but it's also in the

description. There is also affiliate links to two of the other tools that have been mentioned today. mentor uh mentor Q and also option strat that Christopher used to visualize his uh calendars. But with that I will say thank you to everyone everyone who watched watched. Thank you to the fantastic panel for sharing your experience and knowledge. Uh we will organize a new set alive in uh in March most probably. So look out for that and of course every Sunday there is a new video interview with the retail options trader. So thank you very much uh

to the panel for great