Earnings season is finally behind us. But there are always a few interesting opportunities to be found in between earnings cycles. Plus, the downtime between cycles gives us some time to reflect on the prior earnings season and, more importantly, prepare for what is ahead.

There are a few interesting opportunities that garner a look in the week ahead, which we will discuss below. But there is no doubt that opportunities are slim as we sit in the doldrums between earnings cycles. When earnings season is in full swing we will often see 20 to 30 trade ideas per week.

Cabot Options Institute – Earnings Trader Issue: June 3, 2022

Earnings season is finally behind us. But there are always a few interesting opportunities to be found in between earnings cycles. Plus, the downtime between cycles gives us some time to reflect on the prior earnings season and, more importantly, prepare for what is ahead.

There are a few interesting opportunities that garner a look in the week ahead, which we will discuss below. But there is no doubt that opportunities are slim as we sit in the doldrums between earnings cycles. When earnings season is in full swing we will often see 20 to 30 trade ideas per week.

As always, if you have any questions, please do not hesitate to email me at andy@cabotoptions.com.

The Week Ahead

Here are a few companies that I think could offer some interesting opportunities next week.

• Academy Sports and Outdoors (ASO)
• Dave & Buster’s (PLAY)
• NIO Inc. (NIO)
• DocuSign (DOCU)

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.

All four ideas are in highly volatile stocks as seen through the Implied Volatility column, ranging from 70.9% in ASO to 110.3% in DOCU. These are typically levels of volatility that I avoid when trading around earnings. My preference is to find stocks with implied volatility in the range of 25% to 45%. So, today’s examples, while interesting, are definitely ideas for the more aggressive bunch out there. I have no problem sitting on the sidelines.

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Top Earnings Options Plays

Here are a few other top earnings options plays for next week (6/6 to 6/10):

A Few Trade Ideas for Next Week

As I mentioned earlier, we are in between earnings cycles. Trades will occur in between earnings seasons, but the number will be significantly less than when earnings season is in full swing.

Here is a look at two trade ideas for next week.

NIO Inc. (NIO)
NIO is due to announce Thursday (6/9) before the opening bell. The stock is currently trading for 18.85.

IV Rank: 96.83

Expected Move for the June 17, 2022 Expiration Cycle: 16.25 to 21.50

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 16.25 to 21.50.

If we look at the call side of NIO for the June 17, 2022 expiration, we can see that selling the 22 call strike offers a 82.34% probability of success. The 22 call strike sits just above the expected move, or 21.50. We can define our risk through buying the 25 call, thereby creating a three-strike-wide bear call spread at the 22/25 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 16.25. The 15 put, with an 82.60% probability of success, works. Staying with a three-strike-wide spread I can buy the 12 put to define our risk and create a bull put spread at the 15/12 strikes.

We can create a trade with a nice probability of success if NIO stays between the 7-point range, or between the 22 call strike and the 15 put strike. Our probability of success on the trade is 82.34% on the upside and 82.60% on the downside.

Here is the trade:

Simultaneously:
Sell to open NIO June 17, 2022 22 calls
Buy to open NIO June 17, 2022 25 calls
Sell to open NIO June 17, 2022 15 puts
Buy to open NIO June 17, 2022 12 for roughly $0.49 or $49 per iron condor

Our margin requirement would be $251 per iron condor. Again, the goal of selling the NIO iron condor is to have the underlying stock stay below the 22 call strike and above the 15 put strike immediately after NIO earnings are announced.

Here are the parameters for this trade:

• The Probability of Success – 82.34% (call side) and 82.60% (put side)
• The maximum return on the trade is the credit of $0.49, or $49 per iron condor
• Break-even level: 22.49 – 14.51

Summary

NIO’s implied volatility is way too high for my liking. As a result, I will be sitting this one out. But for those of you who wish to be a bit more aggressive, a trade in NIO might suit you. If so, remember to always use proper position size.

DocuSign (DOCU)
DOCU is due to announce Thursday (6/9) after the closing bell.

The stock is currently trading for 87.63.

IV Rank: 89.64

Expected Move for the June 17, 2022 Expiration Cycle: 70 to 105

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 70 to 105.

If we look at the call side of DOCU for the June 17, 2022 expiration, we can see that selling the 115 call strike offers an 89.80% probability of success. The 115 call strike sits just above the expected move, or 105. We can define our risk through buying the 120 call, thereby creating a five-strike-wide bear call spread at the 115/120 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 70. The 60 put, with an 85.79% probability of success works. Staying with a five-strike-wide spread I can buy the 55 put to define our risk and create a bull put spread at the 60/55 strikes.

We can create a trade with a nice probability of success if DOCU stays between the 65-point range, or between the 115 call strike and the 60 put strike. Our probability of success on the trade is 89.80% on the upside and 85.79% on the downside.

Here is the trade:

Simultaneously:
Sell to open DOCU June 17, 2022 115 calls
Buy to open DOCU June 17, 2022 120 calls
Sell to open DOCU June 17, 2022 60 puts
Buy to open DOCU June 17, 2022 55 for roughly $0.85 or $85 per iron condor

Our margin requirement would be $415 per iron condor.

Again, the goal of selling the DOCU iron condor is to have the underlying stock stay below the 115 call strike and above the 60 put strike immediately after DOCU earnings are announced.

Here are the parameters for this trade:

• The Probability of Success – 89.80% (call side) and 85.79% (put side)
• The maximum return on the trade is the credit of $0.85, or $85 per iron condor
• Break-even level: 115.85 – 59.15

Summary

DOCU’s implied volatility, like NIO’s, is way too high for my liking. As a result, I will be sitting this one out as well. But like I said with NIO, for those of you who wish to be a bit more aggressive, a trade in DOCU might be right up your alley. If so, remember to always use proper position size.

Next Live Analyst Briefing with Q&A

Our first live analyst briefing with Q&A is scheduled for July 8, 2022 at 1:00 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 10, 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.