The day before earnings I bought the June 21 straddle for 1.45. My thinking in this trade was simple; the stock was in the middle of a strong push higher and it was just waiting for a catalyst. I figured even I was wrong and the reaction was unfavorable, the stock had been trading like a caged beast. Note that tight 5 month range.
I chose the 21 price point because my bias was bullish therefore the calls would be more in the money. I picked June instead of May so I could ride the position for a few weeks if I chose so.
I was thinking buying a day early may give me a bit better(lower) implied volatility. It didn't work out. Into the earnings report this I likely could have bought the straddle for 1.35 or even 1.30.
The stock moved higher, as I had anticipated, so then I had to decide what level I was looking to exit at. The closest thing I had to a reasonable target was the fibonacci cluster at the 24.25 zone.
I ended up taking the trade off the table as price respected this fib cluster for two days in a row. I closed the position at 3.05 on Friday.
To recap, with the simple understanding of the larger picture of price, I was able to favorably position myself for a winning trade. However, with better preparation and execution I probably could have squeezed an extra quarter out of this trade.
I think the key take away here is get the most important part right. We aren't going to be perfect!
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