The Number Was Perfect But I Was On The Wrong Side.

The expected move in Cisco yesterday was $10.11.

The stock moved $10.11.

Spot on, baby. It doesn't get any cleaner than that.

We took the bullish side and Cisco went the other way, so that trade will most likely expire worthless.

I could not care less.

The thing that bothers me is not that I got the direction wrong, because I don't give two craps about the direction. What bothers me is that it moved exactly what it was supposed to move and we happened to be standing on the wrong side of it.

Had we done the bearish trade, the stock was sitting at 123 and we would have done the 13 wide fly. That puts your central strike at 113.

Cisco is trading 113 right now.

You golden pony boy.

I will have five of those in a row where I sit there going son of a, and it does not change the process one bit. Direction is the coin flip I stopped trying to call years ago.

Every earnings season I watch people put on the bullish trade and the bearish trade at the same time.

Do not ever do that. It is a stupid trade long term, the mathematics are not close, and you are playing against yourself without realizing it.

You make 100% on one side and you lost 100% on the other side. Everybody feels like a genius about the winner and conveniently forgets the loser, and at the end of the season your account tells you the truth even if your memory does not.

People think a trade here and a trade there increases the probability of success. Nothing could be further from the truth.

Look at the options math for a second. Pay $5 for a $10 wide spread and that trade carries roughly a 50% probability. A dollar for something worth ten puts you at about a 10% chance.

The price is telling you the odds before you ever click send.

Doubling up on both sides just doubles what you paid to find out.

So Cisco moved $10.11 into an expected move of $10.11 and we were on the wrong end of it. That is a coin flip, and I will take that same trade tomorrow.

It all starts with the expected move.

That number sits there before every print, on every name, and it is the only part of this anybody can know in advance.

I recorded a session on this. 

And I’d watch it if you have any plans to trade earnings or trade a stock after its announced. 

→ Watch it before the next batch of earnings hits.

To your success,
Don Kaufman