Earnings are tomorrow morning (or later this morning). The expected one standard deviation move is about $10. I’m playing the Sept puts, whose expected move is +/- $16. My cushion is at about $15 right now. Looking at the one year chart, this stock is at the bottom of a one standard deviation channel, which to me means that it will seek its average in said channel, which is a higher price than its currently at. Plus the Implied Volatility Percentile is above 50%, meaning that option premiums are expensive, and hence better to short.
My trade is that this sees a drop in volatility after earnings and therefore a reduction in option price. My target is a 50% return and I’ll close out. The chart has me believing that this wants to go higher. In the end it’s a statistical numbers game and I like the odds with this set up. I’ve certainly been wrong before. Hopefully not this time.
Why BABA for this trade as opposed to GRUB for example? Do you want the volatility? Easier to trade in size? I can actually see BABA moving down into the low 160's. GRUB seems fairly certain of a move to 140.00. Less down side risk. Thanks again for posting your trades.