Hey 5-Star Trader,
“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works, and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.
For this “Tuesday Trade” I want to talk to you about my earnings trade in Apple (APPL).
Apple is a huge player when it comes to the market, especially during the heart of earnings season, as it is a part of the FAANG reports — Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google). Their earnings report was set for April 28, so on the day before the release I decided I wanted a piece of the action.
Choosing my setup…
Recently, the market has been struggling to run in one direction, and conditions have been very choppy so I knew buying a butterfly was not wise. Instead, I chose to go with an iron condor. Why? Because iron condors do not require you to pick a direction. Instead, you just have to determine a range in which a stock will move, and if it stays within that range you can profit off trading the report.
Defining range for gain
On the morning of April 28, I sold four iron condors in AAPL for 135/140/135/130 CALL/PUT @3.75 Limit Orders (LMT). Pictured below using my Hot Zone Indicator, you can see that while it had moved up to $6.69 or 7% on earnings, on average it sees a 1-4% move.
I was anticipating APPL was going to stay around 135, and if it did so, I could buy back the iron condor for less than I sold it for. My target was around $2.00.
Payoff after the report…
Apple’s report was released, and though its stock price fluctuated, it stayed within our range so I decided to take profits on half of my positions. I bought back two out of the four iron condors for 135/140/135/130 CALL/PUT @2.30 LMT.
Historically speaking, the first week of May is weak. That, combined with the “FAANGover” — or the pullback after FAANG earnings — gave me a reason to be slightly bearish. So even though I let my final two iron condors sit for a little bit longer, I was keeping a very close eye on them.
Just one hour later I decided to buy back the rest of my iron condors for 135/140/135/130 CALL/PUT @2.28 LMT. I figured it would be better to take the profits rather than wait any longer because I knew I was going to get rid of the rest of that position by the end of the day.
This was an earnings report trade, so unlike some of my “run into earnings” trades, the time I held these was significantly shorter. This was a two-day trade, rather than a trade over a few weeks. It is also important to note that trading the earning reports is inherently riskier, as they are often an all-or-nothing type of trade, depending on the results of the earnings itself. Remember to adjust your risk accordingly!
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