As you get more experience with trading options you’ll quickly discover how quarterly earnings reports affect the pricing of options. All publicly traded companies are required to report their earnings once a quarter. The pricing of options is affected because in some cases there is a higher than normal chance that the share price of a stock can make a larger than normal move right after earnings are released. Because the chance of a bigger than normal move goes up this increases the implied volatility for the stock. Options prices are directly tied to the level of volatility for a stock. The higher the implied volatility, the higher the premiums for the options for the stock.
This week there were a lot of companies that were reporting earnings. In some ways this can be an advantage for options traders. For options sellers it means the premium prices go up and you can collect a higher premium. Of course the risk also goes up that the chance of the share price moving beyond your strike price increases.
SMCX Example
An example can be seen with the ETF SMCX which is the 2x leveraged ETF on SMCI. At the beginning of the week the share price of SMCX was around $65. SMCI was scheduled to report earnings on Tuesday after the market close. The earnings report was lower than expected which caused the share price of both SMCI and SMCX to go down significantly. By Wednesday morning the share price of SMCX was down to around $40. Of course options premiums were higher than normal before earnings, but if you had sold a put at a strike price near where it was at the beginning of the week your put option would be far in the money by the end of the week.
RUN Example
In some cases the price can move in a direction that goes in your favor as we’ll see with a couple of my positions in this account this week. One example is with the put position that I had RUN. I started the week with a put option on RUN with a strike price of $10.50. On Monday morning the share price of RUN opened at around $10 a share so my put was in the money at that point. I knew that RUN was reporting earnings on Wednesday so I decided to wait to see what would happen with the share price from earnings.
The share price had fallen to around $9 a share right before market close on Wednesday, but then earnings came out and the price shot up. By the time the market opened on Thursday the share price had gone up over $11 which caused my put to be in a much better position.
Week 15 Results
Here are the positions I started the week off with:
The process went slightly different this week since I started with the 4 positions that all were in the money at the beginning of the week. I didn’t actually make any trades on Monday as I wanted to see how my current positions went as the week progressed. I knew that OSCR and RUN were both reporting earnings later in the week so my hope was that the share prices of these would come up at least some after earnings.
On Tuesday I decided to roll both my SERV and TMC puts out further to give them more time. I rolled my SERV put out one week to the same strike price and collected $15 (1.3%) for the roll. My TMC put I rolled out two weeks to 8/22 for the same strike price and also collected $15 (2.13%) for this roll.
Fortunately the earnings reports for both RUN and OSCR were favorable and the share prices ended up being higher than the strike prices on my puts. I was able to let both of those positions expire at the end of the week.
On Thursday because I was feeling fairly confident that my RUN and OSCR puts would be able to expire I knew I needed to bring in a little more premium to reach at least close to my target for premiums for the week. So I opened a new position by selling a put on ACHR for an 8/15 expiration (8 DTE) with a strike price of $9.50. For this trade I was able to collect $46 in premium.
Summary
For the week I was able to collect $75.80 in net premiums. My target for week 15 is $77.18. Even though I was a little below my target, it was close enough that I didn’t feel the need to open another new position.
The total net premiums I have collected for the first 15 weeks is $1,203.16. My target for the first 15 weeks is $1,103.04 so I’m still a little ahead of target overall. I am ending up with using a smaller portion of my account for this week. I’m using $2,800 of my account as collateral for my open puts. This gives me more flexibility moving forward.
Here are a list of my trades since the beginning of July. I also included a screenshot of my end of week account value and positions.
Read: How to Generate Consistent Profits Through Options Trading