Trading earnings is always a near shot in the dark. We can observe optionflow ahead of earnings, look at patterns. But you never know what’s going to happen. Therefore I always advertise to trade the options ahead of time, and only hold some over earnings if, and only if you’ve made enough profit to warrant holding some options over the earnings. Or the other alternative is to look for a low cost option strategy such as a butterfly. In case of FB, we have been very bullish on the stock since October, and have done nothing but buying the dips in the AM, almost on a daily bases. This Monday I suggested buying 102 calls around $3.30, and sell some the afternoon before earnings,Wednesday 4th, when they were trading between $4.00 and $4.20. I also mentioned that the PRZ on the daily chart was the only next target we had left, after all targets on 60min and smaller timeframes were achieved.
Lo and behold, facebook traded up into the PRZ zone, with a high just slightly above the “D” of the AB=CD pattern.but at the EOD closed pretty much in the middle of the PRZ zone. So at this point we have to be neutral, on the daily chart. If we get a daily candle close above the PRZ than that can open the door for a target at the 161.8%XA. see chart.
CELG didn’t fare so well on its earnings. We alerted on some large call buying last week in the 117 calls. They did see some gains before earnings. But wasn’t enough to hold over ER imo. the daily chart shows that the CD leg is still intact, unless 117 gets breached to the downside.
These are the opportunities where you can get the most bang for your buck, if indeed the PRZ works. The premium has deflated somewhat on the Calls on the leg down prior to the PRZ. And you have a better change to get your order filled at the bid, or even below the bid. On SPY we have a very tight Bid-Ask spread, but on other options with a wider spread, it will definitely make a big difference to get a fill at or near the bid. If indeed the reversal occurs where we expect it to occur, you will immediately see an increase on the premium, and orders are getting filled closer to the ask from there on. Therefore on the slightest bounce at the PRZ, most often we see the opportunity within a short period of time, to set a stop at break even.
Within about 45minutes from the PRZ reversal, an entry alerted for a possible CD leg higher. This pattern played out up to 210.25.
It wasn’t a very big move, but it was yet another perfect harmonic trade, which returned some 50% on the calls.
In addition to harmonics I like to watch TD%F on options. I’ve written posts on this indicator before. It is available as an indicator for TOS.
Look how both at the HOD and LOD the %F indicator alerted trade opportunities on both puts and calls.
By the End of Day, we saw SPY trying to start a larger AB=CD pattern, then the one in the morning. Unless it falls back below the “entry”, we will watch the corresponding targets of this pattern.