This segment discusses an earnings play in LNKD, a short strangle, that did not go as planned and how by strategically trading the position we were able to turn a large loss into a small loss. Sometimes trades will not go as expected and it is critical to know what to do when a trade goes wrong.
LinkedIn (LNKD) was trading for $252 before the April 30 earnings announcement. We sold the weekly $225/$280 strangle for a $3.25 credit, a neutral bias trade. This trade had a 80% probability of profit (POP) and one day until expiration (DTE). The breakevens in LNKD were $221.75 and $283.25. A table was shown of the expected moves of the LNKD May 1st weekly options (1 DTE), the May 2nd weekly (8 DTE) and the regular May monthly options ( 15 DTE) and their implied volatility before earnings.
The stock dropped like a rock after earnings and declined by 20%. This meant our short put was $25 in the money and we were losing about $2300. Tables are displayed showing how we reacted to this move and subsequent moves. Tom and Tony discuss what they did to turn a loss of about $2300 into a loss of just over $200.
Watch this segment of Anatomy of a Trade with Tom Sosnoff and Tony Battista to see how they turned a big loser into a small loser and for ideas about how you can do the same. Trades don’t always go right and you need to know what you can do when they go wrong.
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