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 week’s “Tuesday Trade,” I want to outline my trade in L Brands (LB).
You may not recognize L Brands by their company name, but they are the parent retailer responsible for popular brands such as Victoria’s Secret and Bath & Body Works. By now we know there was a lot of hype around the retail sector during recent earnings reports due to the world opening up again.
Wait for Wednesday…
LB was on my radar earlier in the week because its report was due May 18, but I specifically waited until the day after the report before I got in. Why? Because it was Wednesday.
What’s so important about Wednesdays? The reason is theta decay. When selling premium, the goal is to have theta decay as fast as possible so you can buy it back for cheaper down the road. Since options expire Fridays, a Wednesday entry in the same week makes your option expire at a faster rate (just two days until expiration).
I saw LB had a market maker move (MMM) of 3.81, but I knew it didn’t normally move that much on earnings. That was my signal to sell premium and that Wednesday was my perfect window of opportunity. I went in for four iron condors ― SELL -4 IRON CONDOR LB 100 21 MAY 21 66/70/66/62 CALL/PUT @2.98 limit order (pictured below).
One day into the trade, the LB setup was looking perfect. I bought back three contracts ― BUY +3 IRON CONDOR LB 100 21 MAY 21 66/70/66/62 CALL/PUT @1.41 limit order ― to ensure I banked 50% profits, but held one. Since it was only Thursday, I wanted to make that last contract get the maximum theta decay the following day.
Finally Friday rolled around and LB stayed stable so I was able to squeeze out a little more than what I had the day before and closed out my final iron condor ― BUY +1 IRON CONDOR LB 100 21 MAY 21 66/70/66/62 CALL/PUT @1.03 limit order.
Waiting for Wednesday can make for higher gains at expiration.
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.
