Google update (GOOGL) - Lotto earnings trades and thoughts

5 minute video covering my thoughts on Google and its recent price action. I'd watch it if trading GOOGL or GOOG. Watch it HERE

Lotto trades are bets on events like earnings. They are low cost and I am totally okay losing the premium I pay for them. Much like a real lotto ticket, I know my odds are not favorable. The amount I spend on a real lotto ticket won't break my heart when I find out I didn't win. Same here.

There is some strategy in the set up though.

If I use a debit spread (puts or calls) there are two factors to consider:

1) Buy the debit spread close to current price.

  • I expect to pay half of the width of the spread. So for a $2.5 wide spread I expect to pay $1.25/contract.
  • This is the max I can lose.
  • Here to win, I only need to guess the correct direction. If it goes my way, I win.

2) OR buy the debit spread much farther away from current price.

  • I pay much less than scenario #1
  • So smaller risk since cheaper price to get into the trade
  • BUT here I have to not only guess direction but also size of the move.

There is no science for the short term move direction or size. I go with gut.

WHAT I DON'T DO INTO EARNINGS:

  • NO credit spreads: Meaning no iron condors, no cps or ccs. I can guarantee you that not 1 iron condor survived the NFLX earnings this week!!!!
  • I don't risk a ton of money: The money I risk won't break my heart. I am a terrible gambler and this is more gambling than investing. Might as well go to Vegas.
  • I don't complicate things: I get suggestions of all kinds of complicated trades. For example "butterflies" are not ideal on earnings since they are a 'thread the needle' type of trade. The easiest thing to do is a vertical debit spread.
Posted to Create Income with Option... on Oct 19, 2016 — 11:10 AM

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