Traders & Investors Paradise

According to the article A no-cost options strategy to get long Tesla if this sell-off is just an emotional overreaction in CNBC, traders who want to benefit from the correction in Tesla shares can deploy an options strategy if they feel that the correction is overdone. The technicals are also showing an oversold condition.

The recommended options trade strategy is a credit spread, better known as a risk reversal. This credit spread can be established by selling an at-the-money put and using the premium collected in writing that put option to buy an upside out-of-the-money call. The same expiration will be used for both the put and the call options. Tesla Risk Reversal: Sold the regular expiration March $185 put for $11.00 (collected) Bought the regular expiration March $200 call for $6.50 The result in the sale of the ATM $185 put and the purchase of the upside $200 call results in a credit spread collecting $4.50 or $450 every one lot.

According to an article in CNBC (link), the historical price movements of Netflix post the last five earnings events reveals a trend, namely, that most earnings-related shifts are typically confined within a 10% range. However, there are outliers like the 13% move on Oct. 19, 2022 and the 16% move on Oct. 19, 2023. These outliers show Netflix's inherent volatility.

It is also stated that the price movement after earnings in January of the previous year was recorded at 8.5%. This historical context provides insights into the potential magnitude of market reactions following the upcoming earnings announcement.

One can take advantage of the increase in implied volatility (IV) which causes an increase in the prices of options expiring shortly after the event. Once earnings are announced the IV (implied volatility) of the options declines forcefully. This is instantly reflected in options pricing on the following day after earnings, and options lose all this inflated juice thereby dropping drastically in value. This is also known as "IV Crush".

The trade recommended is an "Iron Condor". An earnings iron condor Selling an iron condor is an options trading strategy where you simultaneously sell out-of-the-money call spreads and put spreads. Since you are selling spreads (instead of selling naked calls and puts, your risk and reward are both defined at the time of entry).

To construct this trade, a trader can sell a put spread of $485 (current price) – $38 (expected move) on the expectation that NFLX will not drop below $447. To add some more buffer to this, the trader could sell a $435 put option and buy a $420 put option at the same time (thereby constructing put spread side of the trade).

On the same logic, the call spread can be $485 (current price) + $38 (expected move) is $523. We could add some more buffer to this and sell a $535 call option and buy a 540 call option simultaneously.

Trade Structure and Analysis:

SELL -1 NFLX 535-540 C\u002F435-430 P Iron Condor CREDIT (also max profit): $140 MAX LOSS: $360 Trade

Execution: These post-earnings trades are quick. Traders put them on 1 to 2 hours before the market close on the day earnings are about to be announced. This maximizes the premium one will capture on the trade. You may notice that the premium you are receiving goes up the longer you wait to put on this trade.

Note that the put side has a 88% probability of success and the call side has approximately 80% probability of success. Those are very good odds. However, as is the nature of high probability trading, the risk is higher than the max profit. So, we need to have clearly defined risk-reward targets for this trade.

It is also stated that these trades are high probability trades and so 8 out of every 10 trades are expected to become winners. However, there must be a pre-determined stop loss.

Macquarie on Bajaj Fin
U-P, TP Rs 5275
Weakening cross-sell franchise & co's weaker digital footprint will affect loan growth going ahead
Expect RoA to moderate from 4.6% in FY23E to 4.2% over FY23-25E, while consensus builds no moderation
Risk-reward unfavourable @6.4x FY24E BV

https://twitter.com/nimeshscnbc/status/1597778991313997825

Bajaj Finance has lost a bit of ground. The 6800 Put came into the money. However, instead of delivering the stock, I rolled it down to the 6600PE. Hopefully the stock will stay above that till the Nov expiry.

I didn't want to give delivery as the stock is worth keeping and there would be a liability for capital gains tax in case I delivered it. So, I covered the position and absorbed the loss. I have sold Calls and Puts and hope to recover the loss in the next few months.

I have sold 6000 2540CE Calls in HDFC Ltd for Rs 16.55 each. Today, the stock surged nearly 6% to Rs 2650. This was because the DOW had surged 900 points (3%) yesterday because inflation is falling. Also, news came in that under the amended MSCI M&A RULES, HDFC, HDFC BANK Merged entity can see double the current MSCI weight. MSCI Weight post merger can go from 5.78% to 13%. Adjustment factor of 1x applicable instead of 0.5x.

https://twitter.com/YatinMota/status/1590940849302802434

The result is that I am bleeding profusely from the short calls.

I have the stock in my portfolio and will give delivery in case adjustment is not feasible.

Bajaj Finance has yielded a good gain of about Rs. 3.50 Lakh due to the stock staying range-bound. I will repeat the same process for November. This will hopefully enable me to recover some of the losses suffered due to the premature sale.

Though the stock is at 519, the 540PE is yielding a gain of Rs. 10800. In addition, the 550CE is also yielding a nice gain. So, I exited the positions for a gain of Rs 45500. I have placed an order for sale of two lots (1950) of the 500PE of the November expiry for Rs 14.

Jefferies has recommended a buy of Can Fin Homes for a target price of Rs 635

"Jefferies On Can Fin
Buy, TP cut to Rs 635
Operating Results Beat; Clarity Around Mgmt Transition Key To Re-Rating
Strong Demand In Housing Should Drive 20% Loan CAGR Over FY22-25
NIM Ahead Of Est But Could Dip Over FY22-25
Raise FY23-25 EPS Est. By 9-10%"

https://twitter.com/nimeshscnbc/status/1582562786366074880

Can Fin jumped nearly 4% putting my overall position in a tidy profit. If the Calls get threatened, I will exit at cost.