Wednesday Special

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Hello traders, how are you today?
If your new here welcome
The markets closed “flattish” today but the S+P 500 did manage to go above 7,000 for a while for the second day in a row. Now we just need it to close there
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$SPY ( ▼ 1.43% )  
$QQQ ( ▼ 1.85% )  
$IWM ( ▼ 2.19% )  

This morning I shared an idea that I have about on Wednesday afternoons writing about things that I wish I knew before I started trading Options
Earnings season is now here and this is hands down the perfect one to start with

In Options we have a thing called I.V. or “Implied Volatility”
Its important, very, very, very important

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If there was a book about trading Options, I.V. should have its own chapter
Or at least a big part of one
I.V. is far too big and broad to cover in only one writing, so I’ll break it down deeper as time goes by
What it is is a measurement that’s used not only in a Options pricing, but also how much the underlying ( lets say Bobs Apples ) is expected to move, up or down

:::Basic I.V. 101 at the VERY BARE BONES BASICS goes like this:::
Traders want to be buyers when I.V. is below 50
When I.V. is above 50 we are taking on more risk when buying, the move is expected to be greater, I.V. doesn’t dictate direction, only amount of movement either way

::::::::THIS IS IMPORTANT:::::::::
Prior to earnings or other scheduled announcement events, I.V. rises or is “elevated”
Lets say Bobs Apples reports on a Tuesday AH
You are bullish on Bobs Apples and feel it will rise with earnings
On Monday Bobs Apples is going for $100.00 a share
You decide to buy the 100 Calls for that Friday
I.V. is ranked at 80 at that time
Bobs Apples does beat, by 3%
Woo Hoo you were right!! Time to get paid!!!!
Nooooooope, you wake up Wednesday morning to your acct now being down $3,000.00 on Bobs Apples
The I.V. has dropped since the “announcement” and is now sitting at 25
You then call your brokerage and tell them “Hey! Bobs Apples just beat, you guys stole my money, I want my money!! “
The guy on the phone then explains to you that you just got “Crushed”
That my trader friends is what’s known as “The I.V. Crush”
Had Bobs Apples risen lets say 10-12% instead of only 3% you may of been good, but it didn’t
And you lost
That my astute trader friends, is exactly how “This Trader Here” in what seems like an entire lifetime ago, learned about “The I.V. Crush”

Do you now see why we trade Bull Call Spreads? Strangles?
Protection, we want downside protection
Long Calls have their time and place, and when they work they work “Feeling Froggy?”
But buying them directly prior to earnings carries all kinds of different risks that traders are often unaware of

$META ( ▼ 2.15% )  
$TSLA ( ▼ 3.25% )  
$IBM ( ▼ 3.44% )  
All just beat
Tech is strong right now and our positions in $GOOG ( ▼ 2.27% ) and $NVDA ( ▼ 3.28% ) are both doing well

We here at theoptionscoach.net hope that you are doing well and getting prepared for the cold returning in a few days… brrrrrrrr

The Options Coach