Trades for May 10, 2017

Earning Release Gamble: $NVDA opened a risk reversal combo
+1 May12 114 CALL
-1 May12 94 PUT
Paid debit of 0.07

This morning, I woke up to the cry of my baby.  It was 6:45am.  The market is up and running for the past 15 minutes.  I quickly checked my $NVDA gamble play on my phone.  To my relief, $NVDA was trading above $114.  However, time is of the essence in options.  My call expires this coming Friday, May 12th.  I had thought I opened my combo risk reversal for May 19th, but that wasn't the case.  When my short put and long call got filled, the price execution was not what I had expected either.  It was for $2.47 (short put) -$2.54 (long call).  Essentially, I thought the premiums on the options were going for around $1 at the time I placed my order.

Anyways, my short put is now worthless so I get to keep my $247 ($2.47x100), no action is required.  With the long call, I can not let it go below $2.61 or else, I'd start losing money on the trade.  I was watching $NVDA fluctuating between $115-117 in the early morning hours.  I tried to close my call for $4.50, soon after, it kept on dropping to $3.00.  So I panicked and re-adjusted my price for $3.50 and it got filled shortly after.  Ended up making $96 on the call.

If I had been patient and waited to the end of the day, the $114 call for May12 would have closed at $7.47 as $NVDA closed upwards @ $121.29 per share.  I could have made $493 on the call instead!!  My problem is I am always too quick to take profits and too slow to cut losses.  I really need to re-evaluate the way I handle trades.

So how much did I make for my $7 gamble overall?  I made $343 profit in a day less $3.30 in commission.  

In hindsight, the odds on my gamble were against me.  10% jump in a day is rare for any stock.  

Scenario#1 - $NVDA beats, but doesn't jump above $114 CALL strike.  My call premiums would decay rapidly and become worthless if $NVDA trades below $114 but above $94 by May12.  I would lose my $7 gamble!

Scenario#2 - $NVDA doesn't beat, traders are punishing the stock by bringing it down below $94 PUT strike.  My PUT premiums would increase in value and wipe out all the credit I have received then I would start losing money depending on the difference in the price of the share and strike price by May12.  

There are three ways to handle this scenario#2:

1.  Buy to close to the PUT for a loss

2.  Get assignment of 100 shares @ $94.  Average cost $9153 ($94-2.47x100)

3.  Avoid assignment, roll out your put:  buy to close, then sell to open to a later date with the same strike to get a net credit in hopes that $NVDA will recover and trade above $94 thus not risking $9400 of your own money in the stock.

Another trade I made today is:
Sell to open $MDLZ

-1 June9 42.5 PUT

Received credit of 0.47

I have sold puts on $MDLZ many times, I have never been assigned.  I regret not buying the stock in the mid $20s when I initially laid eyes on them.