When IV picks up the way it does around earnings events, it offers traders the opportunity to take advantage of it if they know how.
The catch is that with increased volatility comes more risk…
But the good news is that risk can be managed.
So today I’m going to walk through a couple of ideas that illustrate how traders can participate in earnings season’s potential upside while limiting risk.
Tesla Earnings Trades
This week we have tech earnings and Tesla Inc. (Nasdaq: TSLA) kicking everything off after today’s closing bell.
When we look at the chart, you can see that the stock has been trading sideways for the last few weeks.
But we know Elon Musk is a madman who isn’t afraid to do or say something that can move his company’s stock price — in either direction.
So today I’m going to show you a couple of trading strategies that can help out in this situation.
First, let’s take a look at what’s called a “bull put spread.”
With this strategy, you have two put options on the same stock with the same expiration date — a short put with a higher strike price, and one long put with a lower strike price.
Then we’ll dig into the “bull call spread.” The bull call spread is a similar idea to the put spread. Here you have one long call with a lower strike price, and one short call with a higher strike price.
In the video, I’ll show you how these Tesla earnings trades are set up, how it can turn a profit and, most importantly, how it limits your risk when implied volatility is running wild.
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