April 17 Weekend Review

Bflakaz Weekend Review

April 20, 2014

Happy Easter!

Recap of Previous Week's Trades

There were no trades put on last week.

Management of Current Trades

There are no current positions.

Trade Setups for the Upcoming Week

NFLX

Looking at this chart, it appears that NFLX has bottomed. Over the course of a month it has made a full parabolic move. But can it rip higher? When bringing up a 2 year chart, it appears so based solely on technicals; NFLX is HUGELY ovresold. But is there a good fundamental reason NFLX is selling off? Not in terms of the company's fundamentals, but fundamentals in its stock valuation. NFLX still has a P/E ration of 187, but that has come down tremendously amid this sell off.

The only way NFLX can rip higher is if it has a truly break out quarter and blows analysts' predictions out of the water, which is unlikely to happen. NFLX subscriber growth has peaked domestically at around 40 million. They plan to crack down on account sharing and have toyed with raising prices. In my view, this is bad for the company, but investors will be pleased. If a price hike is included in the earnings report, out after the closing bell on Monday, then NFLX will go higher. 

I'd think it will be a normal earnings report, I.E. a non-breakout quarter with no price hike news, but I wouldn't rule out the possibility of those happening. So, the trade would be to sell a put spread as close to a 1:1 R/R as possible, that way a move up and a non move in NFLX are profitable, since the premium is being sold. That also means a down move post earnings will have its negative affect on the trade dampened since IV will be crushed.

AAPL

AAPL also has earnings this week, 4/23. Therefore I will be a premium seller here in order to take advantage of the higher IV and then the IV crush post earnings. Iron condor with a tight range, maybe Delta of .4/-.4 or close to that.

I've tried to play earnings reports in the past... some went VERY well and others GOD AWFUL bad. When I first started trading options over a year ago, I bought an strangle on NFLX the day of the earnings report, not understanding IV, and got a lucky 90% return for $2250. Then when I learned how IV worked, I put on an iron condor on facebook (FB) hoping for a non-news quarter and got rocked, because this was FB's breakout quarter where it rose 30% overnight, and I was on the opposite side, losing $2200, my biggest loss to date. Hell, even recently, GRPN reported earnings about 2 months ago and I bought some OTM calls. After the ER it flew higher... and then collapsed. I lost all of my $180. The problem with ER bets is that you can't manage your losses, they're immediate and, most of the time, huge. Therefore, if I choose to play these, I will be cutting my risk waaaaay down and only looking to make a couple hundred bucks, max.

Some Side Notes

The power of the watch list. Just because you've exited one trade in a name doesn't mean you can never trade it again, or better, in the near future. It makes no sense to trade every swing, but when you make a forecast, and those catalysts for the forecasts are met, then show your conviction and trade it. In this case, I'm talking about DDD and GILD.

DDD took a -15% plummet recently, and I had called it several weeks before in a weekend review. Remember this chart from the March 22 Weekend Review?

Well how does it look now?

In the 3/22 WR I said that short target would be 45-40 if DDD broke down below the neckline on the head & shoulders. OOOOOH look at that! Too bad I COMPLETELY missed it!! >:(

How about GILD? In the 3/22 WR I said to look for a bounce from 200MA. I successfully traded that bounce once, but missed the second one days later that was bigger than the first!

The blue arrow was the entry of my trade and the green arrow is where a second entry could have been made from 68 to 74.XX... damn!

Don't ever remove conviction forecasts and very opportunistic trades from your watch list!!!