Weekly Earnings Commentary
Due to the holiday-shortened week I am going to keep it short today.
Earnings are slim to none this week. However, that all changes next week when the big banks kick off. JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) as well as several other big banks are due to report in a little over a week. Yes, that’s right, the wait is almost over…earnings season kicks off Friday, July 14 and I fully anticipate making one if not two trades that day.
Until then, we patiently wait.
If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Weekly Watchlist
There are no stocks with highly liquid options due to report this week.
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
Let’s take a preliminary look
JPMorgan Chase (JPM)
JP Morgan Chase (JPM) is due to announce earnings Friday, July 14 before the opening bell.
The stock is currently trading for 146.61.
- IV Rank: 26.0
- IV: 24.3%
Expected Move for the July 21, 2023, Expiration Cycle: 140 to 152
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 140 to 152.
If we look at the call side of JPM for the July 21, 2023, expiration, we can see that selling the 152.5 call strike offers an 82.61% probability of success. The 152.5 call strike sits above the expected move, or 152.
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 140. The 138 put, with an 85.26% probability of success, works.
We can create a trade with a nice probability of success if JPM stays within the 14.5-point range, or between the 152.5 call strike and the 138 put strike. Our probability of success on the trade is 82.61% on the upside and 85.26% on the downside.
If we look at the earnings reactions since 4/4/2007, there have been only a few breaches of 10% to the upside or downside after an earnings announcement and in JPM’s case they all occurred between 2014 and 2016.
An iron condor looks interesting and, well, a bit tempting in JPM, but we are still a ways out so we will take a closer look in our next report, along with a few other stocks that are due to report that Friday.
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 July 10, 2023.