Cabot Options Institute – Earnings Trader Issue: March 20, 2023

Weekly Earnings Commentary

Earnings season is officially behind us. However, that doesn’t mean that we won’t have an opportunity or two rear its head on a weekly basis.

This week, Nike (NKE) presents a potential opportunity. The options are highly liquid and the IV rank sits above 67. Moreover, we have the ability to create a 31-point range around the expected move of 21 points. We won’t know for certain if a trade will be placed until Tuesday, but all looks promising at the moment as long as the range (or something similar in width) and premium hold up into mid-day Tuesday.

*As a reminder, there will be no more Friday webinars until around mid-April when earnings season ramps back up. Until then, expect to see a few potential trades on a week-to-week basis in the weekly issues, some of which I plan to act on.

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

Weekly Watchlist

Nike (NKE)

Top Earnings Options Plays

Here are a few top earnings options plays for this week (3/20-3/24) 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 This Week

Nike (NKE)

Nike is due to announce earnings Tuesday after the closing bell. The stock is currently trading for 120.45.

IV Rank: 67.1
Expected Move for the March 24, 2023, Expiration Cycle: 110 to 131

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 110 to 131.

If we look at the call side of NKE for the March 24, 2023, expiration, we can see that selling the 135 call strike offers an 87.87% probability of success. The 135 call strike sits just above the expected move, or 131.

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 111. The 104 put, with an 87.53% probability of success, works.

We can create a trade with a nice probability of success if NKE stays within the 31-point range, or between the 135 call strike and the 104 put strike. Our probability of success on the trade is 87.87% on the upside and 87.53% on the downside.

Moreover, we have a 12.1% cushion to the upside and a 13.6% margin of error to the downside.

If we look at the earnings reactions since 3/22/2007, we can see that there have been several breaches of 10% to the upside or downside after an earnings announcement.

As a result, an iron condor looks like a 50/50 chance in NKE this week. If one wanted to make a trade, below are the potential strikes that make the most sense or at least a starting point for a trade.

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

Simultaneously:

Sell to open NKE March 24, 2023, 135 calls
Buy to open NKE March 24, 2023, 140 calls
Sell to open NKE March 24, 2023, 104 puts
Buy to open NKE March 24, 2023, 99 puts for roughly $0.83 or $83 per iron condor.

Our margin requirement would be roughly $417 per iron condor. Again, the goal of selling the NKE iron condor is to have the underlying stock stay below the 135 call strike and above the 104 put strike immediately after NKE earnings are announced.

Here are the parameters for this trade:

The probability of success – 87.87% (call side) and 87.53% (put side)
The maximum return on the trade is the credit of $0.83, or $83 per iron condor
Max return: 19.9% (based on $417 margin per iron condor)
Break-even level: 135.83 – 103.17.

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

March 27, 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.