Trade Alert: Seven New Earning Trades
Plus, a note about banks.
We’re betting against another electric car company this week.
This Week’s Gameplan
Last week was a profitable one for us, as detailed in this post.
My gameplan for this week is to continue to use social data and other metrics to make short-term earnings trades, and also to look for opportunities to bet against weak regional banks on strength. My thesis regarding the regional banks remains the same: most continue to get squeezed by higher rates: they can either continue to lose their depositors, or they can raise their deposit rates to be more competitive: either way, it’s going to squeeze their bottom lines.
But we’ll start with our earnings trades. Each of these companies releases earnings this week, and the plan is to exit all of these this week. The first one is a bearish bet against an electric car company. Details below.
Earnings Trades
Fisker, Inc. ( $FSR ). Weak fundamentals, weak technicals, and bearish social data. The trade: a spread expiring May 12th buying the $6.50 puts and selling the $5.50 puts for a net debit of $0.48. Max gain on 8 contracts is $416, max loss is $384, and the break even is with FSR trading below $6.02.
Tempur Sealy International, Inc. ( $TPX ). Weak fundamentals, weak technicals, and bearish social data. The trade: a spread expiring May 19th buying the $37.50 strike puts and selling the $35 strike puts for a net debit of $1.05. Max gain on 3 contracts is $435, max loss is $315, and the break even is with TPX trading below $36.45.
Light & Wonder, Inc. ( $LNW ). Strong fundamentals and bullish social data. The trade: a spread expiring May 19th buying the $60 strike calls and selling the $65 strike calls for a net debit of $1.35. Max gain on 1 contract is $730, max loss is $270, and the break even is with LNW trading over $61.35.
H&R Block, Inc. ( $HRB ). Weak technicals and bearish social data. The trade: a spread expiring May 19th buying the $32 strike puts and selling the $31 strike puts for a net debit of $0.40. Max gain on 8 contracts is $480, max loss is $320, and the break even is with HRB trading below $31.60.
Unity, Inc. ( $U ). Bullish social data. The trade: a spread expiring May 12th buying the $28.50 calls and selling the $29.50 calls for a net debit of $0.41. The max gain on 7 contracts is $413, the max loss is $287, and the break even is with U above $28.91.
Corsair Gaming, Inc. ( $CRSR ). Weak fundamentals and bearish social data. The trade: a spread expiring on May 19th buying the $17.50 strike puts and selling the $15 strike puts for a net debit of $0.55. The max gain is $1,170, the max loss is $330, and the break even is with CRSR trading below $16.95.
Fiverr International, Ltd. ( $FVRR ). Weak fundamentals and technicals and bearish social data. The trade: a spread expiring on May 19th buying the $30 strike puts and selling the $25 strike puts for a net debit of $2.35. The max gain on 2 contracts is $530, the max loss is $470, and the break even is with FVRR trading below $27.65.
Exiting Those Trades
I placed GTC limit orders to exit those trades at between 85% and 90% of the spread. So, for example, if the spread was $1, I placed a limited order to exit at $0.85 or $0.90. Bear in mind that some of those trades have larger spreads, so for a $2.50 spread, I might have placed a limit order to exit for a net credit of $2.20. I’ll adjust those prices if need be and will note my exits in comments on this post.
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BTC U 28.50-29.50 Call Vertical @ 0.15 . (0.06) loss
STC U 31.50-32.00 Call Vertical @ 0.75 +0.29 profit
Net Profit = 0.23 Opening Position Cost 0.36 63% return
BTO CRSR 17.50 Put @0.65
STC CRSR 17.50 Put @0.15 (0.50) loss -76% return
CRSR was down 1.39 in the after hours market after earnings, opened the next day unchanged, is currently up 2.09.
Some readers were asking the best way to manage post-earnings closing trades, I recommend doing whatever worked in the recent past.. For example, if you have a string of trades that you closed out too soon, hold onto the position longer next time. My last three earnings trades were FSR (best strategy was to close ASAP, those who held on are looking at close to 100% loss instead of 50%+ gains), CRSR (best strategy was to hold longer on the unhedged vertical spread position, best strategy was close out ASAP on the hedged position with short vertical) and CRSR (best to close out ASAP to capture 0.15 on the put before it went to zero). Options markets are strongly autocorrelated (current volatility is influenced by recent past volatility), so the crude metric of doing whatever worked recently has a strong fundamental basis.
SELL TO CLOSE VERTICAL FSR 5.5-6.5 2023-05-12 PUT @0.60 +48%
SELL TO CLOSE EQUITY_OPTION FSR 5.5 2023-05-12 PUT @ 0.25 +47%
SELL TO CLOSE EQUITY_OPTION FSR 5.5 2023-05-12 PUT @ 0.3 +76%
SELL TO CLOSE VERTICAL FSR 5.5-6 2023-05-12 PUT @ 0.29 +81%