Category: Lessons revesited upon earnings season.



This is my first post on my first blog site, so hello all! First of all, I’ve had my fair share of criticism this week from the Twiiter community on my short AMZN play, but surprisingly got heat on the long AAPL plays as well. I stubbornly held fast on my AAPL long plays before earnings, and won, but AMZN play blew up in my face wiping out the AAPL gains and then some.

What to take of this? First of all everyone has their opinions on AAPL & AMZN, The common theme is always long AAPL into earnings and always short AMZN into earnings. Although, for some this week if they followed that mantra it would have led to a 1 of 2 victory week. So what the were the lessons learned or re-learned this week? I say re-learned, because this whole last part of the week, I acted and felt like a rookie trader again. After many successful trades, I strayed from my own rules.

1. Never more than 20% at stake in any one trade,and  that’s especially too much on earnings releases.

2. Don’t ever get too confident. (I.E. being short AMZN on earnings, feeling was a shoe in)

3. Never try to force or chase into a trade. (Never try to fit a square peg in a round hole) I forced the AMZN trade, and shouldn’t have! I chased into the short trade that wouldn’t trigger earlier in the day, and raised prices.

4. Last and final, if you’ve been burned multiple times at earnings releases, for God sakes don’t play them! Unless you are routinely successful at them, so many of us blow up our accounts with grandeur images of grandiose profits, that never arrive, but do just the opposite. ( I let the old rookie trade mentality take over on the AMZN short that had to be a for sure homerun.)

5. When you have a losing week or trade, the last thing you do is try to make a quick buck back. Making a quick trade shooting from the hip, is a careless trade with no exit strategy.

I broke all of these rules this past week, hence therefore my account suffered. I had the utmost discipline for a while now and my account grew steadily during that time. The point is when things are going good, its most likely because you are following your rules, so DONT STRAY from them!

So what were the successful trades of the week that were closed or expired.

1. 4 leg trade all at once, sold Fri before earnings release (1) AAPL Apr27 540/520 bull put spread, and bought (1) Apr27 575/585 debit call spread for limit 0.00 cost.

This trade was closed out Wed morning at 9.55 credit for a 955 gain per spread that cost zero.

2. 4 leg trade all at once, sold Mon before earnings release (1) AAPL Apr27 505/485 bull put spread, and bought (1) Apr27 580/585 debit put spread for limit 0.00 cost.

This trade was closed out Wed morning at 4.70 credit for a gain of 470 per spread that cost zero.

The bull put spreads were allowed to expire.

Total win trades of just 1 spread each was 955+470=1425 gains.

The AAPL trades while successful, broke my allocation risk rules and should never have put both on. I should have only put on the 2nd trade, which was a safer bet.

Now on to the loss trades.

1. Sold Thurs before earnings release (5) AMZN Apr27 210/215 call credit spreads at .61 credit each, total of 305 credit received. This was done to offset the cost of the next trade posted.

2. I then bought (1) AMZN Apr27 195/185 debit put spread at 4.15, or 415-305(credit spread offset)= 110 total cost for the put debit spread.

Trade losses one and two, were actually a married trade, where options were pricing a 7% move not 15% like we had. I sold the upper call credit spreads, to give a nearly free 595/585 debit put spread that most likely was going to work. Key words “Most Likely”. Big mistake, remember when you think you have the Mr. Market figured out, he will do exactly the opposite!

Those two trades married together with the debit put spread cost 415(put spread)-305(call credit received)=110 + 2500 (collateral put up on the (5) 210/215 call credit spreads. That loss equaled 2610 ouch!

The worst possible thing to happened all at once on AMZN, needless to say will think twice on any earnings plays ever again.

This last trade, was the last, and final straw on this the worst rule breaking trade week I have experienced in over two years.

3. Fri Sold (5) off the hip PCLN Apr27 765/770 call credit spreads @.50 limit. Immediately after the execution, I was regretting trying to make the quick bucks back from a previous loss. PCLN immediately skyrocketed to a spread that would eventually cost me 1.50 to close around 2pm Fri.

The trade was closed at 750-250(credit received)= 500 loss total

So this week, was ultimately a bad week, because I strayed from the preset formula and rules I regularly employed, until this week, and lost my way.

Total results for the week in closed or expired trades trades was 2610+500-1425= 1685 loss

One final note, I did make one of my regular formula trades, near the close.

I sold (5) FAS May4 109/111 call credit spreads, and simultaneously in a 4leg trade bought (5) May4 105/104 debit put spreads at .04 credit. It paid for my commissions and a little extra. This trade was not done for the .04 credit, it was done to play the FAS channel around 111-97 lately. I generally would have been hesitant to write the 109-111 May4 call credit spread, but banks are weakening, and the GDP number wasn’t all that great.

My ultimate goal is the more likely scenario where by May4 FAS will be lower than 104 and garner a gain of 1.04 off a trade that I got paid .04 credit to put on.

Also the other part of it is that, I plan on legging into a May4 mid 90’s range bull put spread on a decent decline, and simultaneously buying into low 100’s may4 debit call spreads at total cost of 0.00 or even a credit. That would give another possible gain of 1.00 or more especially if the debit call and put spreads are both ITM at expiry May4.

This strategy is extremely complex and hard to understand, I know. But it only works well with 3x funds most of the time where wild but channel like swings occur on a weekly basis

Have a good weekend all!