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Trading Mistakes - I'm an Idiot Sandwich

Its rare but sometimes I make mistakes. Well there WAS that one time I thought I made a mistake but it wasn't really a mistake. But I digress.

Anyway, today one of our Discord and site members came up with a great idea to trade ahead of an earnings release. It was about 30 minutes before the close so I looked at it, looked at the chart and said sure. It wasn't a large amount of money so I didn't really think twice about it. Put the trade in and forgot about it.

Earnings were released and BOOM - stock did exactly as the member said it would. Yay!

So, I got to calculating the potential profit and as he and I were chatting we came up with totally different figures. He was at 3x and I was at 7x. Thinkorswim has the ability to calculate theoretical pricing of an option, something I could do in my sleep - using their tool I mean, not the actual calculation. TOS kept spitting out the same number and after a while after the close, the price updates to the current, which at that time was the AH quote.

So, I kept checking other calculators and kept coming up with the same numbers. Then the member kindly mentions "What about IV crush?" I am still not paying attention because I am busy running the numbers through different calculators.

Then I reread his comment. And I was like "@#$%^@$&#$%&!!!!"

I had completely forgot about IV crush after earnings. IV crush is when the IV, Implied Volatility, of an option gets "crushed' right when earnings are announced. Volatility rises into earnings of course because its a big unknown. After the earnings are known, that risk component drops.

Now, in my defense, I about never buy options shorter than 2 months out, as you all know. But still. I had completely forgotten that very important data point.

And then I got really pissed. At myself.

It still will be profitable but what a waste of an opportunity. He, lets call him AbsoluteAres, had a great thesis, had great historical trend, and then I f'd it up.

Moral of the story and great reminder for me? Never ever trade around earnings. Just kidding.

No the moral of the story for me is to step back, slow down and make sure I have included all available data points. This time I got lucky. There will not be a next time.

Which reminds me: I post what I believe are good ideas. Most of the time they work out. However, I am not omniscient. So, if you see something you don't agree with or don't understand, ask me. Usually during the day I am doing multiple tasks. When it comes to trade ideas I put forth, I have a checklist I go through so I don't miss anything. Today though at the time of the trade idea from the member, I did 90% of the analysis and forgot one of the most important data points. We will still make money but we could have made more if I had remembered IV crush.

BTW, if you haven't signed up for the site or the Discord chat, I encourage you to do so. We discuss a lot of different ideas - some make the cut and some don't. You don't have to be in the chat all day either. I mention this because within the next 2-4 weeks I will take the chat private and the trade ideas private and behind a paywall. So get in now and it will remain free for you!

Finally, I will have an update to my VIX trades in the morning. Longer durations are again, keeping me in the game. And hats off to Ares - great call!


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