Naked PUT or CALL options carries unlimited risk. Adverse market movement will cause trades to be tested when the underlying stock price go bellow the PUT options strike price, or above the CALL options strike price.Naked PUT or CALL options carries unlimited risk. Adverse market movement will cause trades to be tested when the underlying stock price go bellow the PUT options strike price, or above the CALL options strike price.

If we leave the PUT or CALL options ITM until expiry, then the system will exercise the contracts. System will deduct money from our account to buy 100 shares of the underlying asset at strike price of PUT options or system will deduct money from our account to buy 100 shares at market price and sell to buyer at strick price of CALL options. 

For PUT options seller, the cost of 100 shares from assignment is higher than market price. We can only be profitable if stock price goes above our cost. We can still sell coverred CALL to reduce overall costs.

For CALL options seller, the 100 shares is sold at price lower than market price. Seller does not hold anything. It is a loss.

To avoid options getting exercised, we can roll options before experation to a future date and collect more premium (to reduce cost at the same time). This way, we have a chance to close the options at minimum losses or even with some profits. Here is what I did for one of my trades.

On top of studying options strategies from books, I also join several Facebook groups discussing options trading. In the groups, there are people that disclose their latest trades, ideas, strategies and even P&L of their trades. Normally there are active participants in each group and I can learn a lot of things from them. Many times I can find new strategies and ideas from the groups. I will try out some of the strategies and see if I can use them in long term. 

I do not join a lot of groups, just five with active members.

Just like any options strategies, earnings play with short strangle based on IVR is not without risk. The stock price could gap up or down after earning results. One of the legs in strangle might be tested if the stock price continue in that direction. Another leg will be untested and very cheap to BTO. However, this is the stage we need to defend our position to minimize overall loses, or if lucky, get out the position either break even or small scratches. After the initial Earnings Play with Short Strangle on UBER (IPO) in May in 2019, my subsequent earnings play in Aug and Nov 2019 were not as good as the first one. Lessons learned and will be applied to my next earnings play.

One of my trades is earnings play using Short Strangle strategy with IV Rank.

During the earnings reporting season, there are always uncertainty to the stocks that going to announce their results. Regardless the earnings results - within expectations or surprises - the implied volatility and IVR most likely will go up each day due to uncertainty right before the announcement. What we can do is to

1) scan stocks with high IVR one trading day before the earnings announcement. I usually look for the stock with IVR 70 or above.

2) ensure the IVR crushed dramatically right after announcement in the last few quarters.

3) only select stock with high liquidity.

4) no dividend or the dividend will be given around 20 days or more after earnings so that I have enough time to BTC (buy to close) the strangle.

5) check the historical gap up /  gap down. Then setup the width of strangle wide enough to avoid potentially tested and try to get at least USD100 premium from this strategy.

6) close the position right after announcement when IVR crushing down. Ideally getting 30 to 50% from max profit.

 LYFT was first traded in March 2019 with 37 million transactions on the first day. The company reported first earnings since IPO on May 7th after market. However, I missed the earnings play at that time. The reason was the IV (no IVR yet for LYFT) for this stock was lower then period April 10th to April 16th. The stock went sideways after mid June and before second earnings report. On Aug 7th, the IV was as high as April 10th to April 16th. LYFT was going to report earnings on that day after market.

Just like UBER earning play, the was no prior earning data and we were unable to know how market going to react after earnings. There was no IVR (or IV Percentile in ThinkorSwim) data available for us to make decision. The IVR script I set earlier needs one year data on IV to plot first IVR data point. 

The stock price went sideways between USD58 and 68. When looking at options chain, the option premium was very high. So there was an opportunity to set wide strike prices using strangle for earnings play on LYFT.

A strangle is an options strategy involves a put at a strike price Kp and a call at a strike price Kc, where Kp < S < Kc and S is the stock price.

Both put and call options are at the same expiration.A strangle is an options strategy involves a put at a strike price Kp and a call at a strike price Kc, where Kp < S < Kc and S is the stock price. Both put and call options are at the same expiration. 

Uber is a no stranger company for many of us before its IPO on May 10 2019. The first day volume was 186 millions share but lowest around 11 millions in the month of May 2019. UBER was going to report its first earning results since IPO on May 30th after market closed.

There was no prior earning data and we were unable to know how market going to react after earnings. There was no IVR (or IV Percentile in ThinkorSwim) data available for us to make decision. The IVR script I set earlier needs one year data on IV to plot first IVR data point. Since UBER was an IPO, there was no IVR data.

The stock price was stable around USD39 to USD42 two weeks before earnings. When looking at options chain, the option premium was high. So there was an opportunity to set wide strike prices using strangle for earnings play on UBER. 

Are you interested in a book that provides a very comprehensive coverage of the tastytrade method of trading options? Would you like to have a powerful software package that performs most of the calculations you might need to support your trading? I used to view many videos from TastyTrade website to understand their trading methodology. There are so many videos that I have to view on and off and they are not in very organised manner.  I later found a book that is written according to TastyTrade trading methodology. This book is my best reference whenever I want to trade options.

Check out this book, Trade Options with an Edge from Dr. Russell Richards. It is available in E-book form, softcopy and hardcopy at Amazon.com. The software comes with the book. If you have Excel you can run the software. It includes the Black-Scholes option pricing model, greeks, evaluation metrics for new positions, management of existing positions, pairs trading, calendars/diagonals, risk profiles, IV estimation, BPR determination, futures, exploration of P&L response surface, lists of ETFs, tax estimation, and much more. The book pulls together in one place most of what tastytrade advocates.