Earnings reports always bring high option volatility and richer premiums around the announcement date. To capture that rich premium sometimes you can trade ahead of earnings and other times it’s better to enter the trade after the report is out.
Disney (DIS) gapped down 6 points after earnings and is down another 2 points today. When we put the BWB on expected to be out of the trade prior to earnings but we were not able to close it for any profit.
We fully admit, not the best trade but we can still recover this position. It does show that as long as you have direction correct all your trades would win.
Our entry credit was about 1.03. We are losing 4.85 on the close or a negative/debit of 3.82. We can then sell a new iron butterfly for about 3.77 giving us a debit of only 0.05 to work off. Our risk will stay at 5.00 so this will take a longer to work back to break even.
Disney (DIS): 87.05
TRADE ACTION 1: CLOSE the DIS 11 Nov 92/97 puts and the 110/111 calls for debit of around 4.85
BTC the DIS 11 Nov 97 put
STC the DIS 11 Nov 92 put
BTC the DIS 11 Nov 110 call
STC the DIS 11 Nov 111 call
TRADE ACTION 2: OPEN the DIS 2 Dec 80/85 puts and the 85/90 calls butterfly for a credit of around 3.77
STO the DIS 2 Dec 85 put
BTO the DIS 2 Dec 80 put
STO the DIS 2 Dec 85 call
BTO the DIS 2 Dec 90 call
The Master Portfolio is trading 5 contracts.