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Earnings Trader
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COI Earnings Trader Issue: January 8, 2024

Okay, everyone, the wait is over: Earnings season is back. While the next few weeks will start rather slowly for earnings announcements, we should still see two to three trades before earnings season begins to truly pick up.

This week we have the big banks kicking things off, per usual. My hope is that we can get one, if not two trades off this week. As always, I’ll be focusing on stocks in the weekly watch list below, with Citigroup and JPMorgan Chase at the forefront.

Weekly Earnings Commentary

Before I get started, I want to remind everyone that we will be starting our weekly Friday calls this week. If you wish to attend the subscriber-only call, please click here to sign up.

Okay, everyone, the wait is over: Earnings season is back. While the next few weeks will start rather slowly for earnings announcements, we should still see two to three trades before earnings season begins to truly pick up.

This week we have the big banks kicking things off, per usual. My hope is that we can get one, if not two trades off this week. As always, I’ll be focusing on stocks in the weekly watch list below, with Citigroup and JPMorgan Chase at the forefront.

We’ve made 39 trades in total with a win ratio of 76.9% (30 out of 39 winning trades).

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

Weekly Watchlist

Citigroup (C)
Expected Move or Range: (52 – 57)

JPMorgan Chase (JPM)
Expected Move or Range (165 – 179)

Wells Fargo (WFC)
Expected Move or Range (48 - 52)

Delta Air (DAL)
Expected Move or Range (38 - 43)

Top Earnings Options Plays

Here are a few top earnings options plays for this week (2/08-2/12) if you are so inclined:

COI_ET_010824_earningscalendar.png

Images Courtesy of Slope of Hope

Trade Ideas for This 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)

JPMorgan Chase (JPM)

JPMorgan Chase (JPM) is due to announce earnings Friday before the opening bell.

The stock is currently trading for 172.25.

  • IV Rank: 19.7

Expected Move for the January 19, 2024, Expiration Cycle: 165 to 179

Knowing the expected range, I want to place the short call strike and short put strike of my iron condor outside of that range, in this case outside of 165 to 179.

If we look at the call side of JPM for the January 19, 2024, expiration, we can see that selling the 182.5 call strike offers an 89.71% probability of success. The call strike sits just above the expected move, or 182.5.

COI_ET_010824_JPM_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 165. The 162.5 put, with an 87.76% probability of success, works.

COI_ET_010824_JPM_bullput.png

We can create a trade with a nice probability of success if JPM stays within the 20-point range, or between the 182.5 call strike and the 162.5 put strike. Our probability of success on the trade is 89.71% on the upside and 87.76% on the downside.

Moreover, we have a 5.9% cushion to the upside and a 5.7% margin of error to the downside.

If we look at the earnings reactions since 10/18/2006, we can see that there have only been a few large moves of roughly 4% to the upside and downside after an earnings announcement, so the decently wide margins of error of 5.8% and 5.7% seem appealing … and more importantly, opportunistic.

Net Change – At the Opening Bell

COI_ET_010824_JPM_earningsreactions_open.png

Full Bar – Closing Bell

COI_ET_010824_JPM_expectedmove_close.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 JPM, I will send a trade alert with updated data):

Simultaneously:

Sell to open JPM January 19, 2024, 155 calls

Buy to open JPM January 19, 2024, 160 calls

Sell to open JPM January 19, 2024, 135 puts

Buy to open JPM January 19, 2024, 130 puts for roughly $0.50 or $50 per iron condor.

COI_ET_010824_JPM_price.png

Our margin requirement would be roughly $450 per iron condor. Again, the goal of selling the JPM iron condor is to have the underlying stock stay below the 182.5 call strike and above the 162.5 put strike immediately after JPM earnings are announced.

Here are the parameters for this trade:

  1. The probability of success – 89.71% (call side) and 87.76% (put side)
  2. The maximum return on the trade is the credit of $0.50, or $50 per iron condor
  3. Max return: 11.1% (based on $450 margin per iron condor)
  4. Break-even level: 162 – 183.

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 16, 2024.

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.