Benzinga
Published Apr 23, 2024 19:51
Updated Apr 23, 2024 21:10
Strategies To Use For Tesla Earnings Season: Using Debit Spreads To Capitalize On Earnings Reports
Benzinga - by Sandra Stone, Benzinga Contributor.
On 4-19-24, Sandra with Trading Made Simple LLC was on Benzinga Live with Zunaid Suleman discussing trade ideas for earnings season.
Sandra explained using Butterflies and Debit Spreads near the expected earnings range can be a great way to limit risk and take a directional trade or trade both sides of the expected move for a volatile market. Both Sandra & Zunaid took out of the money debits spreads using the expected move for the upside and downside for a potential move in either direction or both. Tesla, Inc. (NASDAQ: TSLA) stock was at $147. On Monday, 4-22-24 $TSLA ended the day at 142, and Sandra’s ATM Put Debit Spread was at a 30% profit, and the OTM Put Debit Spread was at a 50% Profit. Now Awaiting $TSLA’s earnings report for another possible move.
AT THE MONEY PUT DEBIT SPREAD: Analyze Graph ThinkorSwim
OUT OF THE MONEY PUT DEBIT SPREAD: Analyze Graph ThinkorSwim:
Let’s discuss the Debit Spread strategy in more detail:
Earnings season can be a thrilling time for traders, offering increased volatility and potential for significant gains. However, navigating this period can be tricky. Stock prices can swing wildly based on earnings reports, leading to both windfalls and potential losses. Here, we explore how debit spreads, a strategic options technique, can help you approach earnings season with more control and potentially mitigate risk.
Understanding Debit Spreads
A debit spread involves buying one option contract a Call or Put and simultaneously selling another option contract, with the same underlying stock but with different strike prices and the same expiration date. Example: The option you buy (call) has a higher strike price than the option you sell (call). Since you're paying a premium to buy the call and collecting a premium from selling the call, you have a net debit (cost) when initiating the spread.
Why Debit Spreads for Earnings?
Traditional long calls (buying calls outright) can be risky for earnings trades. The time value of the call erodes quickly if the stock price doesn't rise significantly after the earnings report. Debit spreads offer several advantages:
Here are some key factors to consider when constructing a debit spread for an earnings play:
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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