First Spread

Just got the ability to do long calls and puts, meaning I can now to straddles. To practice, I'm going to first attempt a trade on my virtual account.

I did some research and found that Adobe is releasing earning tomorrow. Adobe beat by .01 in March, but fell for about the next month. Adobe beat by .05 in September, but fell a large amount overnight. The volatility after earnings announcements makes Abode a good candidate for this strategy.

In total, this strategy will cost us about $1,500 upfront to execute. First, 5 contracts of ABDE of the at the money call strike are bought for the month of January. In this case, the strike will be $29. Then, 5 contracts of ADBE of the at the money put strike are bought for the month of January. In this case, the strike will be $28.

To make money off of this strategy, we need a large swing after earnings. We will look to sell the losing option directly after earnings are released so that we can capture any value that remains. The winning option will be held until it has maximized value. We need to be sure not to let the time value of the option decay faster than the intrinsic value of the option increases. The option should not necessarily be held until expiration.

I'm not exactly sure what I will do if there is no significant movement after earnings. One of the options should be sold, but it will take a few days to determine which one.

On another note, I currently hold MON and XOM because I saw them at the buy point in an obvious cup and handle pattern.(MON was actually in a double bottom with a handle).

I am keeping my eye on PFE, BAC, and AA, because they seem to be in cup and handle patterns. BAC looks very promising.