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Earnings Trader
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Cabot Options Institute – Earnings Trader Issue: January 3, 2023

Weekly Earnings Commentary

Earnings season is right around the corner, but we still have a few weeks of a light earnings calendar. However, this week we do get a quick preview of one of the Dow stocks, Walgreens Boots Alliance (WBA).

Other than WBA there really isn’t much to discuss as the majority of the companies due to release earnings this week have little to no options volume. But, as I said before, that all ends in a few weeks when earnings season starts in earnest.

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 (1/3-1-6) if you are so inclined:

COI_ET_010323.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.

Walgreens Boots Alliance (WBA)

WBA is due to announce earnings Thursday before the opening bell. The stock is currently trading for 37.36.

IV Rank: 44.7

Expected Move for the January 13, 2023, Expiration Cycle: 34 to 40

Knowing the expected range, I want to place the short call strike and short put strike of my short strangle outside of the expected range, in this case outside of 34 to 40.

If we look at the call side of WBA for the January 13, 2023, expiration, we can see that selling the 40.5 call strike offers an 85.46% probability of success. The 40.5 call strike sits just above the expected move, or 40.

COI_ET_010323_WBA_call.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 34. The 33.5 put, with an 87.09% probability of success, works.

COI_ET_010323_WBA_put.png

We can create a trade with a nice probability of success if WBA stays within the 7-point range, or between the 40.5 call strike and the 33.5 put strike. Our probability of success on the trade is 85.46% on the upside and 87.09% on the downside.

Moreover, we have an 8.4% cushion to the upside and a 10.4% margin of error to the downside.

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

Simultaneously:

Sell to open WBA January 13, 2023, 40.5 calls
Sell to open WBA January 13, 2023, 33.5 puts for roughly $0.43 or $43 per short strangle.

Our margin requirement would be roughly $455 per short strangle. Again, the goal of selling the WBA short strangle is to have the underlying stock stay below the 40.5 call strike and above the 33.5 put strike immediately after WBA earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 85.46% (call side) and 87.09% (put side)
  • The maximum return on the trade is the credit of $0.43, or $43 per short strangle
  • Max return: 9.5% (based on $455 margin per short strangle)
  • Break-even level: 40.95 – 33.05.

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

January 9, 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.