Please ensure Javascript is enabled for purposes of website accessibility
Earnings Trader
Collect the Biggest Option Payouts Every Quarter

Cabot Options Institute – Earnings Trader Issue: December 12, 2022

Weekly Earnings Commentary

We are entering what could be the slowest week of the year for the earnings calendar.

However, that can’t be said for the macro front, as it will be an eventful week headlined by the Bureau of Labor Statistics’ release of the November Consumer Price Index. Investors will not only be hyper-focused on the headline inflation index but also the FOMC announcement and subsequent press conference with Fed Chair Jerome Powell on Wednesday.

That being said, there is one little earnings gem to be had and that’s in Oracle (ORCL). Today, ORCL announces earnings after the closing bell and there could be a decent opportunity there, especially for those willing to use a short strangle. I’ll discuss the trade potential trade in more detail below.

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

Top Earnings Options Plays

Here are a few top earnings options plays for this week (12/12 to 12/16) if you are so inclined:

COI_ET_121122_earningscalendar.png

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.

Oracle (ORCL)

ORCL is due to announce earnings Monday after the closing bell. The stock is currently trading for 79.86.

IV Rank: 62.7

Expected Move for the December 16, 2022, Expiration Cycle: 74 to 86

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 74 to 86.

If we look at the call side of ORCL for the December 16, 2022, expiration, we can see that selling the 89 call strike offers an 88.19% probability of success. The 89 call strike sits just above the expected move, or 86.

COI_ET121122_ORCL_shortcall.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 74. The 70 put, with an 87.24% probability of success, works.

COI_ET_121122_ORCL_shortput.png

We can create a trade with a nice probability of success if ORCL stays within the 19-point range, or between the 89 call strike and the 70 put strike. Our probability of success on the trade is 88.19% on the upside and 87.24% on the downside.

Moreover, we have an 11.4% cushion to the upside and 12.3% margin of error to the downside … well outside of almost every historic earnings reaction in ORCL since 2007 (see below).

COI_ET_121122_ORCL_earningsreactions.png

Courtesy of Slope of Hope

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

Simultaneously:

Sell to open ORCL December 16, 2022, 89 calls
Sell to open ORCL December 16, 2022, 70 puts for roughly $0.95 or $95 per iron condor.

Our margin requirement would be roughly $800 per short strangle. Again, the goal of selling the ORCL short strangle is to have the underlying stock stay below the 89 call strike and above the 70 put strike immediately after ORCL earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 88.19% (call side) and 87.24% (put side)
  • The maximum return on the trade is the credit of $0.98, or $98 per iron condor
  • Max return: 12.3% (based on $800 margin per short strangle)
  • Break-even level: 89.98 – 69.12

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

December 19, 2022.

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.