Attend John’s Options Trading Boot Camp:Visit this page to become a member ==>
Hey everybody. How’s it going? John Napolitano here with you guys on a Thursday morning. I wanted to talk to you guys a little bit about Lululemon. One of the things I love to do in the middle of earnings when, we’re out of earning season, but Lululemon reports earnings late and they had a blowout.
They had a blowout quarter, they had fantastic news and everything like that. and one of the things that people often ask, is how do you trade earnings? You, especially in the options market particularly and it’s it’s not an easy question to answer. There are different strategies you can use for trading earnings using options.
One of the things I like to do, especially when I’m trying to trade a directional bet on, on a particular name, is I like to wait for the news to come out. I know that sounds counterintuitive because you’re trying to guess which direction the earnings are going, and you could potentially. Fairly significantly if you guessed the coin flip correctly.
But guess what? It’s really a double coin flip. And this is where a lot of new option traders tend to screw up. And this is where they tend to not realize what’s going on. A lot of people, what they’ll do is they’ll bet that the earnings are gonna be positive or they bet that the earnings are gonna be negative, whether it be stocks or options.
They either take a positive view, so they buy call options or they buy the stock or they take a negative view and they buy, put. Or they short the stock depending on what they want to do. And you have to realize that the market isn’t that simple. Sometimes what happens is the news comes out and maybe it’s positive, and maybe everybody’s bought it already.
Maybe institutions are looking to use it as an excuse to get rid of. Maybe the earnings is not as good as people think, but the stock, it still ripped. The stock still rips 10, 20%. It could be because it has a high short float and possibly there’s the, the, all the short, the people that were short have to cover the shorts now because there’s some sort of positive news going on.
So it’s not as black and white as people think as far as like betting against a stock or betting for a stock during earning season. So what I like to. is, I like to actually see what’s going on afterwards and see if I could potentially capitalize from a momentum trade or a fade trade. And that’s what I did yesterday with Lululemon.
So I’m gonna jump right into it and show you what I’m talking about. As you can see, this is the closing candle for Lululemon yesterday. Now this had a very wide range. It traded all the way up to the three 70 range, pretty much, and it traded as low. 360. So even if you did nothing but day trade Lululemon after the news, you had 10 points to play with as far as directionally what you wanted to do and everything like that.
The first thing I always do is I go to a five minute chart. I like to work on the five minute chart when I’m short term trading, I think it. Although the shorter timeframe you use, obviously the more unreliable trend is, but these are things that I look at and I keep things very simple.
I know that you’re probably wondering where the heck are all my oscillators and indicators and stuff like that. At Top Trading Pros, what I do is I keep things really simple and my options program, when I talk about. Putting together either short-term or long-term strategies. One of the things I like to do is I keep things very simple.
I have a very simple strategy that works, for these types of situations. I have strategies that work for longer term situations, and I share them all with you in my classes, in my bootcamp, as well as. In my coaching calls that you’d have access to every single week, we discuss opportunities like this.
So the next the next bootcamp that I have is this Monday on April 3rd. Feel free to go to Top Trading Pros if you want top trading pros.com if you want to check it out and sign up. But just to give you an idea of what you would do in a situation like, , obviously the news came out at 4:00 PM the market drove higher, and then in the pre-market it drove even higher.
So the first gut reaction is to, is to buy this thing and say, wow, there’s obviously a lot of momentum behind it. The market actually was up yesterday too, so the momentum of the overall market is to the upside. So to short, this thing could be dangerous, but that’s exactly what I did and I’ll explain to you.
I have a golden rule that I always use and I use vwap. VWAP is a very powerful indicator that I believe I is something that every trader should look at, especially if they’re trading on the short term side. If you’re day trading and in the morning I noticed when the market opened, it actually broke Vwap and it VWAP is this blue line right here by the.
The 20 day moving average is its red line. And if you’ll notice, it broke vwap immediately at the open. It tried to recover. You had a couple of wicks going on here, so it really couldn’t sustain vwp. So my first indication of weakness was right here. And what I mean by weak, look, the stock was still up, I think at this point the stock was up 14%.
So what I mean by weak is I just mean it’s fading. It’s getting tired. It doesn’t want to go any higher. That’s what I really mean by. And this doesn’t look like much of a move. But once I saw this, I was able to buy some weekly put options. I used the weekly options because I wanted a little bit of theta decay.
And we talk about option strategy selection and the ult optimal strategy for what you’re doing in our classes as far as what strike price to use and as far as what timeframe to use. We cover all that in our classes. And it, that, that could be very important too. You have to realize that even if you have the right idea, Sometimes picking the wrong strategy is where a lot of traders go wrong, but either way, this move from around 14% down to 12% or so, I only caught about a 2% move, but that was able that was able to give me a good 30 25 to 30% return on my option premium.
Now that’s not a bad take home pay for one day. I’m never looking to look to hit home runs. I know that sometimes on YouTube and on these videos, gurus talk about, oh, I made 500% on an option. I made 300% on an option. That could happen. That has happened to me. I’ve been blessed with situations like that, but on a day-to-day basis, when I’m just looking to hit singles and doubles every day, that’s what trading is all about.
So if you would’ve gone short right here when it broke vwp and just held it the entire. and maybe exited toward the end of the day here into this weakness, you would’ve made probably between 20 and 40% on your option premium. The other reason why you would’ve made that much is because volatility started to collapse.
When you’re looking at stuff like that you have to be aware of that as well on the credit side and stuff like that. With volatility being high and then starting to go down, you don’t wanna hold this overnight because then you’re gonna lose the money that you paid for the option you’re gonna lose.
So I, my intention was to stay in this just for the day or even a couple of hours. It worked out very well. And these are the things I look at every day. And I do this to supplement my overall trading. Most of my trading is, trading it, it involves more longer term, weekly stuff that you can do while you work full-time.
So, I hope this little lesson was helpful. These are things we talk about in our classes, both long and short-term strategies. Spend more time with us. Sign up for our YouTube channel. Please subscribe to Top Trading Pros. There’ll be more videos like this, more content. The more subscriptions we get, the more content we’re going to produce, obviously.
And check out our website, top trading pros.com and I will see you guys the next boot. April 3rd this Monday. I hope to see you all there. Have a wonderful weekend, everybody. Take care. And a happy trading.