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A Look At Overnight Retail Gains

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·2 min read
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Hey 5-Star Trader,

“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

For this week’s “Tuesday Trade,” I want to outline my trade in Target (NYSE: TGT).

Every quarter during earnings season I like to keep track of when reports are released. Sometimes, I will choose to enter a 21-day contract and make a “run into earnings” trade. Other times, I will wait to do a 24-hour earnings report trade. A few weeks ago when TGT popped up on my radar I decided to opt out of the 21-day trade. Instead, I waited to trade the overnight move and saw a much stronger setup.

The day before Target was set to report I started looking into historical data around company earnings. I saw that on average, Target stock doesn’t move more than 5% when reporting so I bought two iron condors with a risk of 1.5% ― SELL -2 IRON CONDOR TGT 100 20 AUG 21 255/265/255/245 CALL/PUT @7.79 limit order (LMT).

I chose an iron condor because this allowed me to stay neutral while accommodating the anticipated five-ish percentage move I was anticipating. If the movement stayed within my range, I would be able to collect theta decay and implied volatility (IV) crush the following day.

Pictured below is my option chain.


The following day at market open the TGT report was released with results beating expectations. However, the stock was still down $6. This was not a huge issue because the expected move was $11, meaning I was only down roughly half by my calculations.

I decided to hold onto my position and watch for buyers to come in at the daily 50 simple moving average (SMA). If this were to happen, I could expect TGT to bounce right back into my ideal range.

Like clockwork, 30 minutes later I got the bounce I wanted. This allowed me to close TGT for an overnight profit ― BUY +2 IRON CONDOR TGT 100 20 AUG 21 255/265/255/245 CALL/PUT @5.46 LMT.

Interested in improving your options trading? I’ve partnered with Benzinga to offer you my “Options 101” course at an exclusive discounted price. In this strategy package, I’ve outlined fundamentals and solidified key concepts into one concise class. Click to learn more!

Image by Q K from Pixabay

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