How A TSLA Broken Wing Butterfly Trade Earned 420% Profit. Several Options Spread Strategies Are Excellent For Earnings Season.

Earnings season is a time of great volatility in the stock market. As companies release their quarterly earnings reports, investors often react with large price swings. This volatility can create opportunities for traders to profit by using options strategies.

There are three options strategies that can be used for earnings trades: calendar spreads, butterfly spreads, and broken wing butterfly spreads.

Calendar spreads involve buying an option with a longer expiration date and selling an option with a shorter expiration date. This strategy is typically used to profit from a decrease in implied volatility around earnings.

An example of using this strategy was MasterCard MA had a muted earnings report and the stock stayed near 400 after the earnings report. A Calendar Spread purchased a day prior selling  a 

July 28 400 PUT and buying August 28, 400 PUT for $2.35 yielded a 45% profit overnight after the earnings report when the stock stayed neutral.  

Butterfly spreads involve buying one option at a lower strike price, selling two options at a middle strike price, and buying one option at a higher strike price. This strategy is typically used to profit from a stock's price landing within a certain range.

Broken wing butterfly spreads are similar to butterfly spreads, but they have a shorter leg on one side. This makes them a bit less risky than traditional butterfly spreads. 

This example is a TSLA TSLA Batman Broken Wing Butterfly earned 420% profit.  This trade profits anywhere in the batman mask, with higher potential profit in the wings. This is two BWB’s side by side.

All three of these strategies offer limited risk and defined profits. They are also relatively easy to understand, even for beginner traders.

Manage your risk. Use stop-losses to limit your losses if the underlying security's price moves against your expectations. 

Learn different strategies for different market environments. This will increase your chances of success.

If you are looking to profit from earnings season, options strategies can be a good option. However, it is important to do your research and understand the risks involved before you trade. 

Sandra Stone teaches these strategies on TradingMadeSimple.org and can be followed on Twitter, where she posts many of her trades.

This content is for informational purposes only and is not intended to be investing advice.