NVDA Possible Earnings Butterflies

Intro hello Traders Steve Gans here and I want to share two opposing trades with you as we're coming up on Nvidia earnings so Nvidia reports earnings this Wednesday that's August 28th after the close now I also had someone request in the comments Iron Butterfly vs Inverse Iron Butterfly that they wanted to see the difference between an Iron Butterfly and an inverse Iron Butterfly so I figured this is the perfect opportunity to kind of compare and contrast those two different trades and how they might potentially act around earnings so this is on Nvidia and I'm going to the closest expiration after their August 28th earnings so that's August 30th that's the closest expiration those options are going to have the highest volatility reading in them because they're the ones that are are immediately following that earnings report and of course what drives volatility up as you go into earnings is that nobody really knows earnings going to be good earnings bad earnings and even if they're good or bad that really in itself doesn't make a difference it's how the market reacts after those earnings come out so there's a couple Analyze Tab Comparison: Iron Butterfly Strategies different possibilities here many people will look at doing an Iron Butterfly or an iron Condor so that's essentially selling a puts spread and then selling a call spread at or near the money now we're currently trading at 127 I just centered this around 130 for the sake of Simplicity and then I've gone in this case 20 points either side so putting on this trade gives me a p&l diagram that looks like this and if Nvidia ends up somewhere between our break evens of 11780 and 142 that's a pretty darn wide range but if it ends up in that range at expiration this thing is going to Decay quite rapidly and there will be profitability that will come into this trade the other thing that's going to happen is right after that earnings announcement many times not every time and Brett is going to in his blog address this issue as well so take a look at his blog post and see his thoughts on Nvidia and how it might actually expand in volatility if the earnings aren't so good and if that happens if we get outside of the tent and volatility expands we can see that's not going to be so good for this specific Iron Butterfly trade however an opposing view on this trade here is an inverse Iron Butterfly so in this particular case if the volatility were to happen to go up that's going to bring a lot of profitability into this trade and of course as time passes that's going to help as well so long as we're outside the tent again over here we want to be inside the tent we want volatility to largely drop out of this trade if we're doing an inverse Iron Butterfly if we get outside of that zone if we drop outside of the tent so to speak speak or our break evens notice our break evens here are pretty much the same the 17.63 uh 142 you know basically the same over here so here we want to be outside after earnings and ideally volatility might Spike up if volatility doesn't Spike up and we're still outside of the tent here we drop down to the 110 range or so uh that's all fine and good too but again things can improve in this trade if we get both of those if we get time passes we get past the earnings date and the volatility spikes in that case we could even still be inside this tent a little bit and have some profitability so the goal here is to just kind of show a compare and contrast if you will on these two different trades we can see in this case the net credit we going to take in $1,222 and and of course our idea our goal is to buy this back for as cheaply as we can if we were to pay these Center strikes right here at expiration which is highly unlikely if that were to happen we'd be able to buy this thing back for a few bucks and we'd have about $1,200 in profit now here we're paying a debit for this trade but when it comes time to exit the trade we would be selling the butterfly and we could potentially have a profit here of about that same amount $760 somewhere in that General range now let's take a look at all of the stats if you have the paid version of option Strat you're also going to see all of the Greeks here then you'll see that they're pretty much the inverse of each other so all of those are great Tools in option Strat to help you kind of model and decide what type of Interest or what type of trade that you might want to consider