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Earnings Trader
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Cabot Options Institute – Earnings Trader Issue: November 28, 2022

Weekly Earnings Commentary

We are officially entering the earnings doldrums, but that certainly doesn’t mean that opportunities won’t present themselves. For instance, this week Marvell (MRVL) announces earnings and offers a decent opportunity for an iron condor and potentially a candidate for a short strangle.

I’ve gone over an iron condor example in the “Weekly Trade Ideas” section below and will send out a short strangle idea as we get closer to the earnings announcement Friday. As always, I’ll let everyone know (in a separate alert) whether or not I will be making the trade.

And, as always, 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 (11/28 to 12/02) if you are so inclined:

COI_ET_112722_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.

Marvell Technology (MRVL)

Marvell is due to announce earnings Thursday after the closing bell. The stock is currently trading for 42.98.

IV Rank: 64.4

Expected Move for the December 9, 2022, Expiration Cycle: 38.5 to 47.5

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 38.5 to 47.5.

If we look at the call side of MRVL for the December 9, 2022, expiration, we can see that selling the 50 call strike offers an 88.95% probability of success. The 50 call strike sits just above the expected move, or 47.5. We can define our risk through buying the 55 call, thereby creating a five-strike-wide bear call spread at the 50/55 call strikes.

COI_ET_112822_MRVL_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 38.5. The 36 put, with an 86.17% probability of success, works. Staying with a five-strike-wide spread I can buy the 31 put to define our risk and create a bull put spread at the 36/31 strikes.

COI_ET_112822_MRVL_bullput.png

We can create a trade with a nice probability of success if MRVL stays within the 9-point range, or between the 38.5 call strike and the 47.5 put strike. Our probability of success on the trade is 88.95% on the upside and 86.17% on the downside.

Moreover, we have a 16.3% cushion to the upside and 16.3% margin of error to the downside … well outside almost every historic earnings reaction in MRVL since 2006 (see below).

COI_ET_112822_MRVL_earningsreactions.png

Courtesy of Slope of Hope

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

Simultaneously:

Sell to open MRVL December 9, 2022, 50 calls
Buy to open MRVL December 9, 2022, 55 calls
Sell to open MRVL December 9, 2022, 36 puts
Buy to open MRVL December 9, 2022, 31 puts for roughly $0.58 or $58 per iron condor.

Our margin requirement would be $442 per iron condor. Again, the goal of selling the MRVL iron condor is to have the underlying stock stay below the 50 call strike and above the 36 put strike immediately after MRVL earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 88.95% (call side) and 86.17% (put side)
  • The maximum return on the trade is the credit of $0.58, or $58 per iron condor
  • Max return: 13.1%
  • Break-even level: 150.58 – 135.42.

The next Cabot Options Institute – Earnings Trader issue will be published on

December 5, 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.