Not much to say this week. We are now four weeks away from the next round of earnings and there is no doubt it will be an interesting one. I will continue to share any ideas that come our way and possibly make a trade or two in the process. This week, we actually have a potential trade on our hands in FedEx (FDX). I will discuss the trade in the “Trade Ideas” section below.
We recognize opportunities are scarce; they always are when we are in between earnings cycles. However, when earnings season is in full swing, we will often see 20 to 30 trade ideas per week, with the potential to send out alerts on two to five each week. Of course, if you wish to trade more (beyond our alerts), other ideas will be there for you to peruse and trade as you wish.
We try to place trades on at least 10-15 trades per earnings cycle, sometimes more, sometimes less.
Cabot Options Institute – Earnings Trader Issue: June 17, 2022
Not much to say this week. We are now four weeks away from the next round of earnings and there is no doubt it will be an interesting one. I will continue to share any ideas that come our way and possibly make a trade or two in the process. This week, we actually have a potential trade on our hands in FedEx (FDX). I will discuss the trade in the “Trade Ideas” section below.
We recognize opportunities are scarce; they always are when we are in between earnings cycles. However, when earnings season is in full swing, we will often see 20 to 30 trade ideas per week, with the potential to send out alerts on two to five each week. Of course, if you wish to trade more (beyond our alerts), other ideas will be there for you to peruse and trade as you wish.
We try to place trades on at least 10-15 trades per earnings cycle, sometimes more, sometimes less.
As always, if you have any questions, please do not hesitate to email me at andy@cabotoptions.com.
The Week Ahead
Here is the one company that I think could offer an interesting opportunity next week.
Below you will find the implied volatility (IV), IV rank, IV percentile, average past price movements around earnings, expected move (implied move) and a few other key items to help you with any potential trades.
The following list is a guide for potential earnings season trades next week.
We only have one idea for next week: FedEx (FDX). Below are a few more ideas for those of you who tend to be a bit more aggressive.
Top Earnings Options Plays
Here are a few other top earnings options plays for next week (6/20 to 6/24):
Trade Ideas for Next Week
Next week we actually have a potential trade on our hands in FedEx (FDX). Let’s take a look to see if FDX warrants a potential trade alert.
FedEx (FDX)
FDX is due to announce Thursday (6/23) after the closing bell. The stock is currently trading for 225.31.
IV Rank: 99.21
Expected Move for the July 1, 2022, Expiration Cycle: 203 to 2474
Knowing the expected range, I want to, in most cases, place the short call strike and short put strike of my iron condor outside of the expected range, in this case outside of 203 to 247.
If we look at the call side of FDX for the July 1, 2022, expiration, we can see that selling the 255 call strike offers an 87.09% probability of success. The 255 call strike sits just above the expected move, or 247. We can define our risk through buying the 260 call, thereby creating a five-strike-wide bear call spread at the 255/260 call strikes.
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 203. The 187.5 put, with an 85.85% probability of success, works. Staying with a five-strike-wide spread I can buy the 182.5 put to define our risk and create a bull put spread at the 187.5/182.5 strikes.
We can create a trade with a nice probability of success if FDX stays between the 67.5-point range, or between the 255 call strike and the 187.5 put strike. Our probability of success on the trade is 87.09% on the upside and 85.85% on the downside.
Here is the trade:
Simultaneously:
Sell to open FDX July 1, 2022, 255 calls
Buy to open FDX July 1, 2022, 260 calls
Sell to open FDX July 1, 2022, 187.5 puts
Buy to open FDX July 1, 2022, 182.5 for roughly $1.00 or $100 per iron condor
Our margin requirement would be $400 per iron condor. Again, the goal of selling the FDX iron condor is to have the underlying stock stay below the 255 call strike and above the 187.5 put strike immediately after FDX earnings are announced.
Here are the parameters for this trade:
- The Probability of Success – 87.09% (call side) and 85.85% (put side)
- The maximum return on the trade is the credit of $1.00, or $100 per iron condor
- Max Return: 25.0%
- Break-even level: 256 – 186.50
Summary
Fedex actually offers a decent opportunity for a trade. I like the 67.5-point range that we can create while still having the ability to bring in $1 in premium for a potential 25.0% return. Because FDX reports later in the week (after the close Thursday), I want to go out one additional week, which is why I’ve chosen the July 1, 2022, as opposed to the June 24, 2022, expiration cycle. As a result, I wouldn’t expect to bring in the entire $1 in premium, but I would be more than happy to lock in half of that, or $0.50 for a quick 11.1% return.
As always, if I decide to place a trade, I will let everyone know well ahead of time. Stay tuned!
Next Live Analyst Briefing with Q&A
Our next live analyst briefing with Q&A is scheduled for July 8, 2022 at 12:00 p.m. ET and we are going to get right to it. Every Friday during earnings season I will hold a live webinar. In the webinar we will discuss the prior trades of the week, look at potential trades for the upcoming week (including any trades that you wish to discuss), and take any questions you might have. Earnings trades tend to bring lively discussions so I’m looking forward to our first of many. Register here.
Portfolio
No positions.
The next Cabot Options Institute – Earnings Trader issue will be published on June 24, 2022.
About the Analyst
Andy Crowder
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.