Cabot Options Institute Earnings Trader – Alert (JPM)
JPMorgan (JPM)
JPM is due to announce earnings Friday (10/14) prior to the opening bell. The stock is currently trading for 108.50.
Expected Move for the October 21, 2022, Expiration Cycle: 102 to 115
IV Rank: 76.1
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 102 to 115.
If we look at the call side of JPM for the October 21, 2022, expiration, we can see that selling the 118 call strike offers an 88.44% probability of success. The 118 call strike sits just above the expected move, or 115. We can define our risk through buying the 122 call, thereby creating a four-strike-wide bear call spread at the 118/122 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 102. The 99 put, with an 85.32% probability of success, works. Staying with a four-strike-wide spread, I can buy the 95 put to define our risk and create a bull put spread at the 99/95 strikes.
Simultaneously:
Sell to open JPM October 21, 2022, 118 calls
Buy to open JPM October 21, 2022, 122 calls
Sell to open JPM October 21, 2022, 99 puts
Buy to open JPM October 21, 2022, 95 for roughly $0.70 or $70 per iron condor
Our margin requirement would be $330 per iron condor. Again, the goal of selling the JPM iron condor is to have the underlying stock stay below the 118 call strike and above the 99 put strike immediately after JPM earnings are announced.
Here are the parameters for this trade:
- The probability of success – 88.44% (call side) and 85.32% (put side)
- The maximum return on the trade is the credit of $0.70, or 70 per iron condor
- Max return: 21.2%
- Break-even level: 118.70 – 98.30