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Earnings Trader
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Cabot Options Institute – Earnings Trader Issue: April 17, 2023

Weekly Earnings Commentary

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As we enter our second week of earnings trades, we are greeted with a plethora of opportunities. My focus this week will be on Morgan Stanley (MS) and American Express (AXP). That being said, there are several other stocks that could garner some attention as well, including Netflix (NFLX) and International Business Machines (IBM). So, given the number of potential opportunities this week, expect to see at least two, if not three, trade alerts as we move throughout the week.

If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Weekly Watchlist

  • Johnson & Johnson (JNJ)
  • Goldman Sachs (GS)
  • Netflix (NFLX)
  • Morgan Stanley (MS)
  • Tesla (TSLA)
  • International Business Machines (IBM)
  • American Express (AXP)

Top Earnings Options Plays

Here are a few top earnings options plays for this week (4/17 to 4/21) if you are so inclined:

COI_ET_041623_earncalendar.png

Images Courtesy of Slope of Hope

Trade Ideas for Next Week

As a reminder, you will quickly begin to notice I tend to stick with stocks that have high liquidity as it’s far easier to get in and out of a trade. Medium liquidity offers tradable options, but sometimes the bid-ask spread is wider, which means a greater potential for more price adjustments, making entering and exiting a trade difficult from time to time. Remember, there are roughly 3,200 tradable stocks with options and 11% have medium liquidity while only 3% have what’s considered high liquidity.

Potential Trade Ideas for This Week

America Express (AXP)

American Express (AXP) is due to announce earnings Thursday before the opening bell.

The stock is currently trading for 163.22.

  • IV Rank: 36.2

Expected Move for the April 28, 2023, Expiration Cycle: 154 to 172

Knowing the expected range, I want to place the short call strike and short put strike of my iron condor outside of the expected range, in this case outside of 154 to 172.

  • If we look at the call side of AXP for the April 28, 2023, expiration, we can see that selling the 175 call strike offers an 87.84% probability of success. The 175 call strike sits just above the expected move, or 172.
COI_ET_041623_AXP_bearcall.png

Now let us move to the put side. Same process as the call side. But now we want to find a suitable strike below the low side of our expected move, or 154. The 150 put, with an 87.16% probability of success, works.

COI_ET_041623_AXP_bullput.png

We can create a trade with a nice probability of success if AXP stays within the 25-point range, or between the 175 call strike and the 150 put strike. Our probability of success on the trade is 87.84% on the upside and 87.16% on the downside.

Moreover, we have a 7.2% cushion to the upside and an 8.1% margin of error to the downside.

If we look at the earnings reactions since 10/23/2006, we can see that there have been only a few breaches of 7% to the upside or downside after an earnings announcement.

Net Change – At the Opening Bell

COI_ET_041623_AXP_earnreaction.png

Full Bar – Price Movement Throughout the Day

COI_ET_041623_AXP_earnreactionfullbar.png

If one wanted to make a trade, below are the potential strikes that make the most sense or are at least a starting point for a trade.

Here is the potential trade (as always, if I decide to place a trade in AXP, I will send a trade alert with updated data):

Simultaneously:

Sell to open AXP April 28, 2023, 175 calls

Buy to open AXP April 28, 2023, 180 calls

Sell to open AXP April 28, 2023, 150 puts

Buy to open AXP April 28, 2023, 145 puts for roughly $0.70 or $70 per iron condor.

Our margin requirement would be roughly $430 per iron condor. Again, the goal of selling the AXP iron condor is to have the underlying stock stay below the 175 call strike and above the 150 put strike immediately after AXP earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 87.84% (call side) and 87.16% (put side)
  • The maximum return on the trade is the credit of $0.70, or $70 per iron condor
  • Max return: 16.3% (based on $430 margin per iron condor)
  • Break-even level: 175.70 – 149.30.

As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.


The next Cabot Options Institute – Earnings Trader issue will be published on April 24, 2023.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.