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Earnings Trader
Collect the Biggest Option Payouts Every Quarter

July 19, 2023

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!

International Business Machines (IBM)

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 this Friday 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!

International Business Machines (IBM) is due to announce earnings Wednesday after the opening bell.

The stock is currently trading for 135.77.

  • IV Rank: 36.5

Expected Move for the July 28, 2023, Expiration Cycle: 130 to 141

COI_ET_071923_IBM_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 130 to 141.

If we look at the call side of IBM for the July 28, 2023, expiration, we can see that selling the 145 call strike offers an 86.83% probability of success. The 145 call strike sits just above the expected move, or 141.

COI_ET_071923_IBM_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 130. The 127 put, with an 87.97% probability of success, works.

COI_ET_071923_IBM_bullput.png

We can create a trade with a nice probability of success if IBM stays within the 18-point range, or between the 145 call strike and the 127 put strike. Our probability of success on the trade is 86.83% on the upside and 87.97% on the downside.

Moreover, we have a 7.0% cushion to the upside and a 6.1% margin of error to the downside.

If we look below at the earnings reactions since 10/17/2006, we can see that there have been only a few breaches of 6% to the upside or downside after an earnings announcement.

Net Change – At the Opening Bell

COI_ET_071923_IBM_openbell.png

Full Bar – Price Movement Throughout the Day

COI_ET_071923_IBM_closebell.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 IBM July 28, 2023, 145 calls

Buy to open IBM July 28, 2023, 150 calls

Sell to open IBM July 28, 2023, 127 puts

Buy to open IBM July 28, 2023, 122 puts for roughly $0.60 or $60 per iron condor.

Our margin requirement would be roughly $440 per iron condor. Again, the goal of selling the IBM iron condor is to have the underlying stock stay below the 145 call strike and above the 127 put strike immediately after IBM earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 86.83% (call side) and 87.97% (put side)
  • The maximum return on the trade is the credit of $0.60, or $60 per iron condor
  • Max return: 13.6% (based on $440 margin per iron condor)
  • Break-even level: 145.60 – 126.40.

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 Senior Analyst at Cabot. 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.