Earnings Price Action
The market this week was dominated by results and news related to earnings. Traders are often drawn to making directional bets right before an earnings report, and if you do that be very aware that it is a form of gambling. It might work out for you, and you might lose all your premium.
This week, Twitter was still in the news. Will Elon buy it? Will the board reject his offer? If he does buy it, how will that affect Tesla? Will he go in with a partner? What is a poison pill? These were all questions many asked this week. Few answers have been found.
Another huge story was NFLX’s earnings. After a very disappointing earnings report and letter to investors, the integral member of the FAANG stocks lost nearly 35% in value. A company losing (or gaining, for that matter) one to two percent in value in a short term provides lots of options play possibilities. Losing five percent is a very big deal, but for a company the size of NFLX to lose 35% of its value is devastating. This story will play out over the months to come.
In a converse story, TSLA reported record profits, and Thursday saw a general market selldown, indices falling significantly. Friday continued with another day-long red slide. Since mid-March, SPY has gone from almost $462 to under $425 in Friday’s aftermarket.
INSIDE THE BOX
Of note, Thursday featured some serious range that many of our traders were able to take advantage of throughout the session. Money was made to the upside and the down with calls and puts. Thursday was a great day for intraday options trading with range everywhere, as was Friday.
All of this talk regarding earnings was happening in our trading rooms this week as well. Even though many of our full-time moderators caution against ever holding a short-dated options contract through earnings, many people chose to gamble. Some play highly OTM calls or puts, hoping for a directional move. Others play OTM strangles hoping that one will pay for the other and then some. Costing even more premium, some might take an At-the-money straddle. None of these are recommended due to the very real effect of collapsing implied volatility after the move. This is widely referred to as “IV Crush,” and it is a real effect that many traders no doubt experienced firsthand this week.
In the category of data-driven trading that is not gambling, it seems flow is returning. By that, I mean high-probability unusual options activity that is top-tier relative to the way we teach flow trading at BlackBoxStocks. One example of a winning flow trade this week was $ZEN. This was called out live and pushed to our members’ phones via the BlackBoxStocks app the day before the stock soared after hours due to a possible sale agreement. There was also a put flow play that was pushed to the app that was very profitable.
One new area in our discord server is the Small Account room. We recently had a small account (less than $500) challenge in our Discord community, and that room has now become a Small Account room. This focuses on how traders can grow small accounts with relatively safe plays. Two moderators are very active in it, and as of now, there is a small group comprising its core. They killed it on Friday with puts to the downside. If you are a member, check out the Small Accounts room. It is active all day.
There is something for everyone at BlackBoxStocks.