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Earnings Trader
Collect the Biggest Option Payouts Every Quarter

January 11, 2024

Okay, everyone, earnings season is finally upon us. I suspect we are in for an interesting earnings season, and to get us started, I will be holding a subscriber-only webinar tomorrow at 12 p.m. ET.

JPMorgan Chase (JPM)

Okay, everyone, earnings season is finally upon us. I suspect we are in for an interesting earnings season, and to get us started, I will be holding a subscriber-only webinar tomorrow at 12 p.m. ET. Click here to sign-up. No worries if you can’t make it, we archive everything here at Cabot. You can find all the archived recordings here.

Remember, as is always the case, risk management is the key to long-term success when using high-probability option strategies. It’s the only way to truly allow the law of large numbers to work in your favor. Don’t get greedy and enamored by the quick nature of these trades. Stay disciplined!

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

The stock is currently trading for 169.50.

  • IV Rank: 17.6

Expected Move for the January 19, 2024, Expiration Cycle: 165 to 175

COI_ET_011124_JPM_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 165 to 175.

If we look at the call side of JPM for the January 19, 2024, expiration, we can see that selling the 177.5 call strike offers an 86.27% probability of success. The call strike sits just above the expected move, or 175.

COI_ET_011124_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 84.55% probability of success, works.

COI_ET_011124_JPM_bullput.png

We can create a trade with a nice probability of success if JPM stays within the 15-point range, or between the 177.5 call strike and the 162.5 put strike. Our probability of success on the trade is 86.27% on the upside and 84.55% on the downside.

Moreover, we have a 4.7% cushion to the upside and a 4.1% 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 4.7% and 4.1% 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 trade:

Simultaneously:

Sell to open JPM January 19, 2024, 177.5 calls

Buy to open JPM January 19, 2024, 182.5 calls

Sell to open JPM January 19, 2024, 162.5 puts

Buy to open JPM January 19, 2024, 157.5 puts for roughly $0.66 or $66 per iron condor.

COI_ET_011124_JPM_price.png

Our margin requirement would be roughly $434 per iron condor. Again, the goal of selling the JPM iron condor is to have the underlying stock stay below the 177.5 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 – 86.27% (call side) and 84.55% (put side)

2. The maximum return on the trade is the credit of $0.66, or $66 per iron condor

3. Max return: 15.2% (based on $434 margin per iron condor)

4. Break-even level: 161.84 – 178.16.

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

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.