“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 week’s “Tuesday Trade” I want to show you my trade with Footlocker (FL).
Last week I traded many key retail earnings. These made for great trades in the options market because there is so much hype right now surrounding retail stocks and their earnings reports. This is because people are anticipating positive reports based on the country reopening and retail was one of the worst hit areas of the economy during lockdowns.
However, something interesting happened. Certain retailers not only survived but thrived. This was primarily due to eCommerce methods and in-store pickup, not to mention brand loyalty. What I saw during the pandemic was that consumers didn’t want to leave their house, but they weren’t going to give up their favorite kind of shoes. FL was able to seamlessly make the pivot during the pandemic and that in combination with their upcoming earnings report created a perfect entry for me.
Iron condor entry…
On May 20 I sold three contracts of FL for an almost at the money (ATM) condor — SELL -3 IRON CONDOR FL 100 21 MAY 21 60/65/60/55 CALL/PUT @3.47 limit order (LMT) — because the implied volatility (IV) was incredibly high and it would need a 6% move to really break outside of the range. While it has occurred once, it’s not highly probable so I sold premium at this pinning strike.
Because it was an earnings report trade, the ticker could swing either way and I knew it would be an overnight move set to expire the following day. Pictured below is my entry into FL:
Pictured below is Footlocker being highlighted by the Hot Zone Indicator. Take notice that the market makers were pricing in much larger moves than what these retail companies generally generate on a report. This was also a positive signal that I should sell at the money premium on FL.
The very next day the results were in and Footlocker beat expectations. I then bought back the three iron condors — BUY +3 IRON CONDOR FL 100 21 MAY 21 60/65/60/55 CALL/PUT @2.03 LMT. I could have waited a little longer for more theta to decay, but ultimately chose to take the quick profits.
At the end of the day, I didn’t choose Footlocker because of the company itself. I chose them because of all of the above… retail is really speculated and that made the implied volatility high, so I could sell that IV. If you know what to look for there are always opportunities in the market.
Interested in trading earnings reports? Join me for my Quarterly Profits live-trading sessions. We will deep-dive into the run into earnings as well as trade the actual reports in real-time.