Pre-earnings trade idea on: $Taiwan Semiconductor Manufacturing(TSM)$
Earnings date: Thursday, Jan 16 before market open
Expected move: Average of past earnings moves is 7%, with this earnings move being pegged at ~6%
Trade Idea:
▫️ Sell-to-open a cash-secured put, Jan 17 expiration, 170, 172.5, or 175 put strike (must be okay with assignment)
▫️ Could turn this trade into a strangle and sell the 240 (or higher) naked call strike, but naked calls are very risky, so might want to do a spread on it to hedge just in case
Points to Consider:
▫️ Expected move places downside to around 190 and upside to 213 (subject to change based on tomorrow's price action)
▫️ 2X the expected move positions put strike around 176-177 and call strike around 225
▫️ Gamma is strongest at the 220 call strike, followed by the 210 call strike / put gamma is strongest at-the-money and slightly below at 195 / there is more call gamma than put gamma overall
▫️ Options chain shows a lot more activity on the call side of the trade versus the put side
▫️ 200 EMA at 173
▫️ Volume point-of-control essentially at 200EMA
▫️ Strongest volume support between 172-176, but not much volume resistance past 207
▫️ Price action is in an upwards channel with current price just below the mid-line of the bollinger band
Post-Trade Actions:
▫️ The put is cash-secured and at a decent level to go long if assigned shares; however, if you are trading naked and don't want shares, then either close for a loss or roll down-and-out if the strike is breached
▫️ If you write a naked call and don't hedge, then you have to watch the trade very closely if the price moves up post-earnings ... if you can close the call side of the trade in profit thanks to IV crush, then take it, otherwise your choices are to roll up-and-out to see if you can find a strike high enough that will not get breached, or simply close out and take the loss
What We Are Doing:
▫️ We have a long position, so we will be selling covered calls at the 230, 235, or 240 call strike ... and we will sell cash-secured puts at the 170 put strike
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