There were a number of stocks mentioned this morning before markets opened in my morning Investing Strategy Notes. Here is the third trade done.
Stock: Eli Lilly and Company Stock (LLY)
Expiry: Mar 15 2019
Method: reverse iron condor
This trade has to be setup no later than Tue Feb 5 2019 by 4:00 PM
Setup Comments:
I have kept the spreads to just $5.00 for this trade. In the past $5.00 was the most consistent for returning a profit. A $5.00 spread is not going to provide a huge profit, but it is more reliable which means I am for a smaller profit but better safety for my capital being risked in this trade.
Put Side:
Bought 3 put contracts of the Mar 15 2019 expiry $120.00 put strike for $2.93 = ($879.00)
Sold 3 put contracts of the Mar 15 2019 expiry $115.00 put strike for $1.40 = $420.00
Cost is $1.53 X 3 = ($459.00)
Put Spread Size = $5.00
Call Side:
Bought 3 call contracts of the Mar 15 2019 expiry $120.00 call strike for $3.66 = ($1,098.00)
Sold 3 call contracts of the Mar 15 2019 expiry $125.00 call strike for $1.39 = $417.00
Cost is $2.27 X 3 = ($681.00)
Call Spread Size = $5.00
Trade Summary:
1) Commission 12 X $0.75 = $9.00
2)Total Capital At Risk = ($1,140.00)
Comments:
This trade is aimed at a 25% profit if the stock moves to or beyond the short put or short call before the expiry date. If it swings both up and down there is a good chance for a larger return.
Outcome: 121.14% Return
Expiry Period: Mar 15 2019
Original Capital Risked: ($1,140.00)
Trade outline, comments, exiting steps:
I would definitely add more to this trade in the next earnings release. The aim was for a 25% profit. The trade ended with a 121% return, almost 5 times what the original goal was. Note the prices on the calls. They made the bulk of the profit. I closed the short calls two days after the earnings were released and that made all the difference to the return. Often closing short positions, especially calls, is the best move to make initially, if the stock is showing no clear indication which way it will move in coming days. When Eli Lilly and Company Stock (LLY) opened up after earnings, it seemed like it might move higher, but it also looked like it might fall lower.
For this trade I used the Mar 15 2019 expiry with the reverse iron condor.
For the put side, I was holding 3 put spreads. I had bought the $120.00 put strike and sold the $115.00 put strike which formed $5.00 debit put spreads.
For the call side, I was holding 3 call spreads. I had bought the $120.00 call strike and sold the $125.00 call strike which formed $5.00 debit call spreads.
Here is the outcome of this trade:
Put Side Of Trade:
3 Long put options for Mar 15 2019 expiry at the $120.00 put strike.
Feb 06 19 : sold 1 put contracts for $4.00 = $400.00
Feb 08 19 : sold 1 put contracts for $4.18 = $418.00
Feb 13 19 : sold 1 put contracts for $4.12 = $412.00
Total Long Put Capital Returned: $1,230.00
3 Short put options for Mar 15 2019 expiry at the $115.00 put strike
Feb 06 19 : bought to close 1 put contracts for $1.29 = ($129.00 )
Feb 19 19 : bought to close 1 put contracts for $0.80 = ($80.00 )
Mar 01 19 : bought to close 1 put contracts for $0.15 = ($15.00 )
Total Short Puts Capital Spent: ($224.00 )
Commissions: ($4.50)
Total Capital Returned From Put Side Of Trade: $1,001.50
Call Side Of Trade:
3 Long call options for Mar 15 2019 expiry at the $120.00 call strike.
Feb 06 19 : sold 1 call contracts for $2.34 = $234.00
Feb 27 19 : sold 1 call contracts for $6.00 = $600.00
Mar 01 19 : sold 1 call contracts for $7.80 = $780.00
Total Long Calls Capital Returned: $1,614.00
3 Short call options for Mar 15 2019 expiry at the $125.00 call strike
Feb 07 19 : bought to close 3 call contracts for $0.30 = ($90.00 )
Total Short Calls Capital Spent: ($90.00 )
Commissions: ($4.50)
Total Capital Returned From Call Side Of Trade: $1,519.50
Trade Summary:
Returned From Put Side: $1,001.50
Returned From Call Side: $1,519.50
Total Capital Returned: $2,521.00
Original Capital At Risk: ($1,140.00)
Profit/Loss: $1,381.00
Return: 121.14%
Questions? Use the form below or Ask Teddi.
Learning The Trade Ahead Of Earnings Strategy
For investors learning the Trade Ahead Of Earnings Strategy, one of the best ways to learn is through actual trades, from start to finish.
Here are trade articles that are well worth reading to learn more on the Trade Ahead Of Earnings Strategy including how to setup trades, manage and adjust them and close them for profits. Make sure to paper trade any strategy until there are consistent profits.
Using The Trade Ahead Of Earnings Strategy With Smaller Portfolios: Aug 31 2017
Under Armour Stock: Aug 7 2017 / Strangle
Amazon Stock: July 28 2017 / reverse iron condor
PepsiCo Stock: July 25 2017 / reverse iron condor
Alphabet Stock: July 25 2017 / reverse iron condor
Netflix Stock: July 18 2017 / modified reverse iron condor – full strategy explanation
Netflix Stock: July 17 2017 / handling the modified reverse iron condor
Delta Stock: July 13 2017 / the day after earnings – reverse iron condor
How To Pick Option Strikes May 16 2017
American Airlines Stock Returned 87% – Here’s How – April 27 2017 / reverse iron condor
Lulu Stock: March 30 2017 – reverse iron condor Handling The Trade Strategy The Day After
Yum Stock: Feb 4 2016: handling a loss when using reverse iron condor trade ahead of earnings
Monster Beverage Stock: May 1 2016: 104% Return – Handling The Trade After Earnings Are Announced
Twitter Stock: May 1 2016: reverse iron condor – calls ended up worthless – 26% returned
Apple Stock: Jan 30 2016: improving on a reverse iron condor trade – 81% return
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. You always trade at your own risk. Read the full disclaimer.