To The Moon

The market plummeted in last few trading days, as the 10-year US bond yield rose above 2.8%, the kinetic energy stocks fell sharply, and the Nasdaq index once again came to a key position.​In my last article: Must Read！4 Key events on April！

Although there is not much deviation between the Fed’s minutes and the March FOMC, but the market began to fall at this time windows as the same as January, and the fluctuation intensified.

Last night $Cboe Volatility Index(VIX)$ closed above $25 again. I said before that the VIX enter a high fluctuation range when it reaches $25. Basically, it can be judged that the several major financial reports will drive big swings on their prices, so straddle and strangle options strategies will become good choices for trading earnings.​I wrote two articles on straddle and strangle options in the last earnings season. Please see the following:

Goldman Sachs said an options strategy to profit from the wild earnings！

Watch OUT! Get Straddle and Strangle for earnings season.

Now let's review the key points of them：

A straddle which a call and put with the same strike price and expiration date is bought. Usually these options are near ATM.

A strangle refers to a call and a put option on distinct strikes, with the same expiration. Usually these options are OTM. If both of these options are ITM, then it is known as agut strangle.

they are both options strategies for volatility, not buying bias. It is bought one week before the results, and obtains excess returns through the large prices swing after the results. You can also sell in advance to stop the profit when the option IV rises to the highest point on the trading day before the result releases. Please see my two articles for details.

Straddle and Strangle are more expensive than simply buying a call or put, because it needs to buy two contracts, so its biggest risk is that the move is less than expected, and the income of one side is insufficient to cover the cost of two sides, resulting in losses. However, as an option buyer, the biggest loss is the total premium of two contracts paid upfront.

The BETA driven stocks are suitable for strangle, that is$Netflix(NFLX)$And$Tesla Motors(TSLA)$. NFLX will release its result on April 19th after market closes, and TSLA will release on April 20th.

$Netflix(NFLX)$ ,after its last financial report, the stock price plummeted by more than 20%. If you buy its CALL and PUT at the same time, PUT will won more than 200%, completely covering the cost of CALL and PUT.

$Tesla (TSLA) $, after the last result, the stock also plummeted by 11%, and PUT rose more than doubled, which also made a good profit.

Almost all high-beta tech stocks made money with straddle and strangle options last quarter. Will it happen again in this quarter? Nobody can be sure, but we bet from the VIX Volatility Index and the stock option IV.

Let's take a look at NFLX's options due next week. Because of the high cost of options, I recommend the OTM options, if the overall cost of a pair of CALL and PUT is controlled around $1000, it should be $315 PUT and $385 CALL, which correspond to the current price rise and fall of about 10%. At present, the implied volatility has reached 80%, and the extreme value of implied volatility last quarter exceeded 100%.​

Look$Tesla Motors(TSLA)$, If the cost of CALL and PUT is around $12, the implied volatility of $875 PUT and $1085 CALL is about 70% at present. This IV is very high for other stocks, but it is not high for Tesla to be honest.​

As the financial report enters the intensive announcement periodat the end of April, more stocks with high BETA will announce their results.As the financial report enters the intensive announcement period at the end of April, more stocks with high BETA will announce their results. Also, we can wait to see how the big tech stocks perform, as this gives us more clues on the trend of the quarter.