Monday, May 23rd, 2016

Fed Ex FDX earning trade using a call calendar spread and the mistakes I made leaving money


www.OptionSIZZLE.com In our Elite chat room I posted a trade in Fed Ex (FDX). With earnings before the Open Thursday morning, implied volatility going into this even is elevated giving advanced option traders opportunities to still make money without having to play direction. In the order flow I saw a bit of a mixed reaction with some looking for prices to hit new 52 week highs, while others where looking for possible protection on the recent run higher. One of my favorite trades going into earnings, is using a calendar spread. A calendar spread involves selling the a closer month contract and buying a further one at the same strike. This strategy is also called a time spread or diagonal. The reason I like to do this trade is to capture the “pump” in implied volatility, which I sell and then use those proceeds to reduce my cost of the further month contract that I purchase. In Fed Ex, the trade that I posted that I was getting into was to, sell to open the March 90 call and then buy to open April 90 call. This trade created a debit or cost of $1.30. The trade profited at the open even with prices gaping lower, but I left a lot of money on the table by exiting early and not following one of my basic rules. In the video I go a little more in depth of the trade and show you what I did wrong and help you learn not to make the same mistake.

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