How to Trade Today's Job Numbers

AppLovin has held up during a very volatile March. The broad markets sit below the 50-day daily simple moving average but have been holding weekly support lines in the sand.

Today we’re getting the non-farm payroll (NFP) data which might create another series of whipsaws into resistance and down into deep weekly support. In a very short-term setup we are looking at a market that can give us either move, so we are going to position into the event and then cover after the NFP numbers on Friday.

Here’s how to do that for maximum profit.

AppLovin’s APP relative resistance zone sits right around $350, but a wider range into the shock move around NFP is expected. The relative support is near $300 but could easily dip to $280. 

That makes a double butterfly the best way to structure our trade. The goal is to keep an eye on the middle strikes with alerts and sell the performing butterfly at the test of the middle strike.

A double butterfly is ideal for larger anticipated moves into a catalyst like earnings or big economic releases. This setup is a combination of a long call butterfly and a long put butterfly. 

A long call butterfly is the combination of a long call spread and a short call spread that share the same short strike. A long put butterfly is the combination of a long put spread and a short put spread that share the same short strike. They are positioned as two separate trades. 

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The long call butterfly (positioned for upside in the details below) – if price action is outsized, we capture $2000 less the cost of the call butterfly, currently $130, IF prices move into $340. 

• Buy to open 1 APP 21 Mar 320 calls 
• Sell to open 2 APP 21 Mar 340 calls 
• Buy to open 1 APP 21 Mar 360 calls 

The long put butterfly (positioned for downside in the details below) – if price action is outsized, we capture $2000 less the cost of the put butterfly, currently $150, IF prices move into $280. 

• Buy to open 1 APP 21 Mar 300 puts 
• Sell to open 2 APP 21 Mar 280 puts 
• Buy to open 1 APP 21 Mar 260 puts 

The long call butterfly holds a current debit of $1.30 at this writing and the long put butterfly holds a current debit of $1.50. Together, the total risk is the debit you have paid for both butterflies, or if you have a definitive bias, you can engage in only one of them.  

The total highest potential profit is $20 (the distance between strikes) less the cost of the debit incurred by buying both butterflies (1.30 + 1.50 = 2.80), so $20 – $2.80 = $17.20.

It is extremely rare to collect all this premium. Instead, I like to consider 200%-300% profit of the investment but big moves can deliver much higher returns. 

The strategy result provides only two choices to exit the trade:

1. To sell both butterflies when the performing butterfly moves into your target parameters – particularly once the middle strike is tested. 
2. To sell both butterflies on Monday if the chart does nothing, or once your threshold for loss is hit. Mine is typically 65-70% with these positions.  

Note that the option chain I chose only gives us 15 days or so – this means that any rapid moves will shift the prices of these positions sharply.

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Courtesy of AppLovin Corporation