NQ Makes for a Different Story than Usual

NQ (NQ Mobile) not to be confused with the /NQ futures (Nasdaq futures) has been a interesting trading vehicle to watch latley. They have over and over again moved there earnings back and back. I have been watching the ATM strangle. I bought iton 7/2/14 before the expected earnings report that didn't come out. I had to pick it up beause it was extremley cheap trading for around .35 -.40 in front of earnings. The reason for this is nobody knew/knows when the actual earnings are/were going to come out. I had a chance intraday to actually sell the strangle for a decent profit, but most of my readers know what my deal with time decay is. Anyway, I have been watching it the day after the expected earnings report which hasn't come yet and the straddle/ATM strangle seems to price approximately the same thing everytime and rally from that level.

The next question is why would I be selling NQ volatility at a 97% IV Percentile. The reason for this is I really don't care. The first line in the sand is that look at the price movement. Implied Volatility hasn't been correct on this stock except for that short period of time in novemeber and back in July and August of 2013. But even that isn't the real reason. The reason is we have the market underpricing options around an even because of the uncertainty of timing of this event. However, we continue to make large unpredictable moves in the underlying paying for most of the decay.

Lets pretend we do but the atm straddle or strangle on 7/9 and the earnings come out. The market does not know if they really will come out or not, so it will be a cheap trade. This stock is either going to go bankrupt (near 0) or it might announce something really good and the stock will rocket. The stock rocketing is the potentially most profitable trade, but it is the least probable. Therefore, the shortside trade is the most probable to be sucsessfull, but it has the least profit potential. This makes the straddle or ATM strangle make a lot of sense.

However, if there is some announcement or piece of news that will end up making sure earnings are on a certain date the options will be over priced again. I prefer the selling put trade because it is the safest if you want to do it. The stock could rocket or go to 0 and your risk is defined with the put. In the case of the call side. The stock could just 100,200, or 300 % at any given moment for any give reason. In stocks like these the downside is always much slower often and the upmoves that are news drive can be huge.

I do warn people who go out and do this trade. Do not do it with large size. I do this in the context of my overal portfolio. The main risk in the trade is time decay, and that is the most important element of my portfolio. How much time decay over my directional risk I have. In a trade like this I will risk no more than 1% of my portfolio and probably about .4-.5% of my overall portfolio.

Email me with questions at alex.optionstrading@gmail.com