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Earnings Trader
Collect the Biggest Option Payouts Every Quarter

May 10, 2023

Cabot Options Institute Earnings Trader – Alert (DIS)

Disney (DIS)

Disney (DIS) is due to announce earnings today (Wednesday) after the closing bell.

The stock is currently trading for 100.25.

  • IV Rank: 20.5
  • IV: 52.96%

Expected Move for the May 19, 2023, Expiration Cycle: 93 to 107

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 93 to 107.

  • If we look at the call side of DIS for the May 19, 2023, expiration, we can see that selling the 110 call strike offers an 86.88% probability of success. The 110 call strike sits just above the expected move, or 107.
COI_ET_051023_DIS_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 93. The 90 put, with an 88.89% probability of success, works.

COI_ET_051023_DIS_bullput.png

We can create a trade with a nice probability of success if DIS stays within the 20-point range, or between the 110 call strike and the 90 put strike. Our probability of success on the trade is 86.88% on the upside and 88.89% on the downside.

Moreover, we have a 9.9% cushion to the upside and a 10.0% margin of error to the downside.

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 DIS May 19, 2023, 110 calls

Buy to open DIS May 19, 2023, 115 calls

Sell to open DIS May 19, 2023, 90 puts

Buy to open DIS May 19, 2023, 85 puts for roughly $0.65 or $65 per iron condor.

Our margin requirement would be roughly $435 per iron condor. Again, the goal of selling the DIS iron condor is to have the underlying stock stay below the 110 call strike and above the 90 put strike immediately after DIS earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 86.88% (call side) and 88.89% (put side)
  • The maximum return on the trade is the credit of $0.65, or $65 per iron condor
  • Max return: 14.9% (based on $435 margin per iron condor)
  • Break-even level: 110.65 – 89.35.

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.