Comment by k1

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k1
November 25th, 2007 at 11:40 pm
The Pre-Earnings Play

JCI is looking great what more could you ask for now that you are risk negative!
You want to add more a little more puts here if it shows weakness but keep the strangle small on the put side. I still am going into earnings overweight long at $3 to $1. If you buy more puts you should buy the July 120 puts.
I think i have a possible 5 bagger even before earnings just scalping the IV before the event. I could have 20-25 bagger after earnings if they are great from my .50 basis!

Establishing Direction and Bias

You have to analyze the numbers and get earnings sentiment to impact probabilities in order to make the highest prob choices available.

Question: Dragon, when you post earnings strangles, you provide your recommended long/short weighting. What tool/process do you use to figure out the right weighting?

Answer: Multitude of factors but the main ones are of course techincals, fundamentals, and more importantly sentiment to earnings and expectations. The stronger your bias the more levered direction you put on but if you think it is just going to be volatile do a 1:1.
It also has to do with my future price projections based on the stock criteria of short interest and float and past gap techincals. I usually like to have some inkling of a bias so the gains will be larger with an educated high probability bet.

Riding profits into the catalyst event:

dragon: Juliet, this is the beauty. you can take half off and then get a free ride into earnings for a bigger pop but you need to strangle 1/3 of half the position with the Aug100 puts to insure against losses. Long volatility with a long bias.