Every Sunday we share trade ideas with our Masters in Trading Options members.

Back on January 17th, we shared an options trade in $SNAP, you can see the trade idea shared with members below.

The trade shared is backed with reason; technical analysis alone to make trading decisions is never enough.

For $SNAP, we shared this trade because (at the time) the options that were priced in the expected move going into earnings were priced too low relative to the amount of movement $SNAP has had after previous earnings releases.

When this trade was shared the options market was only pricing in 20% of the expected movement, while in the previous two earnings releases the stock easily moved 25% or more.  

In our opinion, $SNAP options were priced way too cheap.

Original Trade Ideas Shared With Members 01/17/22

• Buying $42 strike calls in Feb for $2.05
• Buying $35 strike puts in Feb  for $2.20

TRADE MANAGEMENT in $SNAP EARNINGS

$SNAP released earnings on Feb 3, 2022 – after the market closed.

The day before $SNAP released earnings, the stock crumbled down to $24.32.

Above is a screenshot from the Wall Street Wiretapper Options Community.

As $SNAP got crushed the day before its Earning release you can see folks who took this trade looking for an action plan.

The reaction for many is to take profits.

We like to say “nobody ever went broke taking profits” but what if traders had an option to “take profit” and reduce risk but still stay in a strong position to continue making money if the underlying stays volatile.

Here’s what I want you to be aware of –

When $SNAP was trading at $25, the $35 puts that many owned were worth a minimum of $10 ($35-$25=$10).  

Traders could have locked in a massive winner if they covered the straddle before earnings.

But there’s a better “option” – that I explain to the group below –

Instead of getting out of your puts (covering the best part of the trade)

Traders should consider buying the underlying stock in $SNAP to cover those $35 strike puts.

You see… if a trader is long 10 of the $35 strike puts, it’s the same as being short 1000 shares of the underlying stock at expiry.

Let’s do the math:

Option 1:   

Buy Original Straddle Suggested = $425 Risk Per 1x Straddle.

• Long 1 $42 call option = $205
• Long 1 $35 put options = $220

$SNAP Stock Trades $25 (before earnings) 

• Sell 1 $35 puts options for = $1220 ($10 + a little premium for this example)
• Sell 1 $42 call options for = $100 ($1.00)

Profit:  $895 per straddle

Option 2 (preferred):

• Long 1 $42 call option = $205
• Long 1 $35 put options = $220

$SNAP Stock Trades $25 (before earnings)

Buy 100 shares of the underlying stock at $25 (this removes all your risk from the $35 puts!).  When Stock Rallies to $40, sell your $SNAP, and never touch your options.

$SNAP Stock Trade = $1500 ($40-$25)

Best News:  You still have 100% of your options position to trade for the next 14 days until expiration.

The biggest breakthrough I see is when traders learn to Scalp Gamma.

So my suggestion to you, study position management and you’ll see benefits quicker than you think.

Where to Learn Position Management