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Earnings Trader
Collect the Biggest Option Payouts Every Quarter

COI Earnings Trader Issue: August 28, 2023

Earnings season is nearing an end once again, but that doesn’t mean that there aren’t a few opportunities left on the table.

This week we have a few interesting opportunities, with the most intriguing being Lululemon (LULU). The majority of the other potential trades, while having decent options liquidity, are just too volatile for my liking. Again, even though it has been a slow earnings cycle for trading, it doesn’t mean we should force a trade. Remember, trading is always about quality over quantity.

Weekly Earnings Commentary

Earnings season is nearing an end once again, but that doesn’t mean that there aren’t a few opportunities left on the table.

This week we have a few interesting opportunities, with the most intriguing being Lululemon (LULU). The majority of the other potential trades, while having decent options liquidity, are just too volatile for my liking. Again, even though it has been a slow earnings cycle for trading, it doesn’t mean we should force a trade. Remember, trading is always about quality over quantity.

And even if the trades for this earnings cycle were few and far between, we still locked in total returns of 29.2% with an average return of 5.9%.

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

Weekly Watchlist

  • UBS Group (UBS)
  • Lululemon (LULU)
  • Dell (Dell)
  • Salesforce (CRM)

Top Earnings Options Plays

Here are a few top earnings options plays for this week (8/28 to 9/1) if you are so inclined:

COI_ET_082823_earncalendar.png

Images 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.

Potential Trade Ideas for This Week (Not Official Trade Alerts)

Lululemon (LULU)

Lululemon (LULU) is due to announce earnings Thursday after the closing bell.

The stock is currently trading for 365.59.

  • IV Rank: 8.8

Expected Move for the September 8, 2023, Expiration Cycle: 330 to 400

COI_ET_082823_LULU_expectedmove.png

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 330 to 400.

If we look at the call side of LULU for the September 8, 2023, expiration, we can see that selling the 415 call strike offers an 86.60% probability of success. The call strike sits just above the expected move, or 400.

COI_ET_082823_LULU_bearcalls.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 330. The 315 put, with an 85.68% probability of success, works.

COI_ET_082823_LULU_bullput.png

We can create a trade with a nice probability of success if LULU stays within the 100-point range, or between the 415 call strike and the 315 put strike. Our probability of success on the trade is 86.60% on the upside and 85.68% on the downside.

Moreover, we have a 13.5% cushion to the upside and a 13.8% margin of error to the downside.

If we look at the earnings reactions since 3/26/2009, we can see that there have been several moves of 15% to the upside or downside after an earnings announcement, so the seemingly wide margin of error of 13.5% and 13.8% seems far less appealing … and opportunistic.

Net Change – At the Opening Bell

COI_ET_0828_LULU_rectionopen.png

Full Bar – Closing Bell

COI_ET_082823_LULUreactionclose.png

If one wanted to make a trade, below are the potential strikes that make the most sense or are at least a starting point for a trade.

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

Simultaneously:

Sell to open LULU September 8, 2023, 415 calls

Buy to open LULU September 8, 2023, 420 calls

Sell to open LULU September 8, 2023, 315 puts

Buy to open LULU September 8, 2023, 310 puts for roughly $1.00 or $100 per iron condor.

COI_ET_082823_LULU_price.png

Our margin requirement would be roughly $405 per iron condor. Again, the goal of selling the LULU iron condor is to have the underlying stock stay below the 415 call strike and above the 315 put strike immediately after LULU earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 86.60% (call side) and 85.68% (put side)
  • The maximum return on the trade is the credit of $0.95, or $95 per iron condor
  • Max return: 23.5% (based on $405 margin per iron condor)
  • Break-even level: 415.95 – 314.05.

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 September 5, 2023.

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.