Cabot Options Institute – Earnings Trader Issue: February 13, 2023

Weekly Earnings Commentary

It’s a slow week for the earnings calendar as we begin to wind down earnings season. There are only a few noteworthy opportunities with our focus squarely on Cisco Systems (CSCO), Devon Energy (DVN) and Coca-Cola (KO). Admittedly, while the three companies fulfill our liquidity screen, the options premiums offered in each are less than ideal, which could ultimately be a deterrent from taking a trade this week. No worries, because some of our favorite trading opportunities come the following week in the form of Walmart (WMT) and Home Depot (HD).

Last week we placed a trade in Disney (DIS). Disney announced after the closing bell Wednesday and opened Thursday fairly close to the middle of the range of our iron condor. As a result, thankfully, we were able to lock in a 7.5%, one-day profit shortly after the opening bell.

The return marked our fifth straight win this earnings season and seventh straight going back to November 14, 2022. Again, all one-day earnings trades.

Weekly Watchlist

Coca-Cola (KO)
Devon Energy (DVN)
Cisco Systems (CSCO)

We discussed numerous trades in our weekly subscriber-only webinar going through each trade in a step-by-step manner. My hope is that we can make one to two trades this week. Our average number of trades per earnings season is approximately eight to 10 trades.

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 (2/13-2/17) if you are so inclined:

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 Next Week

Cisco Systems (CSCO)

CSCO is due to announce earnings Wednesday after the closing bell. The stock is currently trading for 47.26.

IV Rank: 44.1

Expected Move for the February 24, 2023, Expiration Cycle: 44 to 50

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 44 to 50.

If we look at the call side of CSCO for the February 24, 2023, expiration, we can see that selling the 51 call strike offers an 85.63% probability of success. The 51 call strike sits just above the expected move, or 50.

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 44. The 43 put, with an 84.06% probability of success, works.

We can create a trade with a nice probability of success if CSCO stays within the 7-point range, or between the 51 call strike and the 43 put strike. Our probability of success on the trade is 85.63% on the upside and 84.06% on the downside.

Moreover, we have a 7.9% cushion to the upside and a 9.0% margin of error to the downside.

If we look at the earnings reactions since 11/9/2006, we can see that there have only been a few breaches of 8% to the upside or downside after an earnings announcement.

As a result, an iron condor looks plausible. However, I would like to widen my current range if and when I make a trade this week. As always, IF I decide to place a trade in CSCO, I will send a trade alert with updated data.

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

Simultaneously:

Sell to open CSCO February 24, 2023, 51 calls

Buy to open CSCO February 24, 2023, 56 calls

Sell to open CSCO February 24, 2023, 43 puts

Buy to open CSCO February 24, 2023, 38 puts for roughly $0.53 or $53 per iron condor.

Our margin requirement would be roughly $447 per iron condor. Again, the goal of selling the CSCO iron condor is to have the underlying stock stay below the 51 call strike and above the 43 put strike immediately after CSCO earnings are announced.

Here are the parameters for this trade:

The probability of success – 85.63% (call side) and 84.06% (put side)
The maximum return on the trade is the credit of $0.53, or $53 per iron condor
Max return: 11.9% (based on $447 margin per iron condor)
Break-even level: 51.53 – 42.47.

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

February 21, 2023.

Andy Crowder

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. 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.