Red Hat, Inc. (RHT) has always been a good stock to use the Double Neutral Calendar Spread strategy with. As I posted on my Trading Forum page, where I post all earnings trades I place, (RHT) reported earnings after the markets closed today:
Here is the Profit/Loss Chart for this (RHT) trade:
Currently, as of 5:54 pm EST, the stock is down about $5.20 a share:
One of the main things I stress when trading and teaching about earnings trades is to use a neutral-based approach. For example, Red Hat (RHT) actually had a very good quarter, beating on revenue and earnings. This does not always matter when trading earnings releases. There are many factors that may move a specific stock: future guidance is always one of the most important.
After-hours, on the same hand, is not always an accurate prediction as to how the stock will trade the when the markets open the following morning. However, if the stock should stay in the same range as it is now, this trade looks to be a very nice winner. I paid a net debit of $1.05.
I will post an update tomorrow as to how the trade worked out. This trade does expire this coming Friday, and will all earnings trades, I like to exit as soon as possible, but will also let the time-decay factor work in my favor if I see that a lot more value can be gained by doing so.
This strategy, and all of my earnings-based trades are posted on my Trading Forum webpage.
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Update 1: 12/20/17 at 9:45 am EST: Trade is looking excellent. Will update when the positions are closed out.
Update 2 9:55 am EST: The Call Side position closed at $0.35. Will update when the Put Side position is closed.
Update 3: 10:44 am EST. The Put Side of this trade is currently has a bid/ask price of $0.70 – $1.70, which will narrow out shortly. Trade is in a great position here, right near the put strikes. Time-decay will keep increasing value.
Update 4: 3:35 pm EST. I will be closing the Put Side position tomorrow to let the time-decay factor add even more value. The current Greeks/NBBO on (RHT) trade:
I will also provide a follow-up to this specific trade, why I chose the strikes I did, the expiration dates, and philosophy of the strategy itself. Soon, I will be writing a book on the Double Neutral Calendar Spread strategy that will go into my past trades over the years using it, when to take advantage of it, and why I feel it is one of the best earnings strategies there is. Follow up tomorrow when the position is closed.
Final Update: 12/22/17. The entire position has been closed out a net credit of $2.00.