Top Earnings Options Plays for the Week (1/10– 1/14)

earnings-season-options-trades-January-10

It’s that time of year again!

Earnings season starts in earnest next week with a few of the big banks due to announce.

I’ll be focusing on JPMorgan (JPM) to start off the season, but Citigroup (C) and especially Wells Fargo (WFC), are  also on my radar. As always, I will be posting frequent trades during earnings season so check on the site from time to time for any updates.

I will be sending out my weekly “Top Earnings Options Plays” every Saturday throughout the earnings season so stay tuned!

The Week Ahead

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.

I use the following list as a guide for any potential earnings season trades. If you have any questions on the information provided below don’t hesitate to email me or ask in the comment section below. And don’t forget to sign up for my Free Weekly Newsletter for weekly education, research and trade ideas.

(click images to enlarge)

Earnings-season-trades-January-10-2022

Here are a few other top earnings options plays for next week (1/10 to 1/14):

earnings-season-calendar-january-10-2022

Courtesy of Slope of Hope

Due to the uncertainty around earnings announcements, both speculators and hedgers create a huge demand for options around a company’s earnings announcement. This increase in demand for the options for that stock increases the implied volatility, which ultimately increases the price of the options.

Basically, options prices are inflated around earnings announcements, and as sellers of options our goal is to take advantage of these price discrepancies.

We can always create a trade with a nice probability of success using a variety of options selling strategies. At the top of the food chain would be the undefined risk options strategy known as the short strangle. Of course, if you wish to use a risk-defined trade, check out the price of an iron condor at various strike widths. I normally use short strangles or iron condors outside of the expected move and with a probability of success typically above 80%.

The reason I go outside of the expected move or range is because we know through extensive research that 80% of stocks trade within their expected move immediately following earnings.

Again, if you have any questions, please feel free to email me or post your question in the comments section below. And don’t forget to sign up for my Free Weekly Newsletter for weekly education, research and trade ideas.

4 comments on “Top Earnings Options Plays for the Week (1/10– 1/14)

  1. Robert M Abramson on

    Andy:
    I haven’t notice you using historical volatility as a gauge of probability. HV seems to be a better estimate of what will come. and is often lower than IV. Can you comment on why you use IV.

    Reply
    • Andy Crowder on

      Robert,

      I use IV because IV is baked into the current price of the option. IV tells me through other measures where current levels stand in relation to prior periods. HV simply look towards the past, and while that is helpful when gauging whether or not current levels of IV are high or not, it doesn’t;t give me nearly enough information to make sounds decisions going forward. I hope this helps.

      Reply
  2. tom butler on

    I do not quite agree with the following statement u made: “80% of stocks trade within their expected move immediately following earnings”. In my understanding this may be true of expected move just prior to earnings announcement and that is computed by adding the ATM put to the ATM call of the DTE nearest the earnings date but not after the earnings date announcement. Then after earnings are announced all things are known and volatility and option premiums get crushed and go lower. Since earnings and market reaction to earnings are unknown prior to them being announced I cannot comprehend how any notion of the market’s reaction can be mathmatically computed so no one knows what the numbers will be “after” the announcement and they are only known “before” the announcement as computed by the sum of ATM put and ATM call that give an expected range of movement up toward and right before the announcement but certainly not after the announcement.

    Reply
    • Andy Crowder on

      Tom,

      Thanks for writing in. You certainly don’t have to agree with my statement, just know that it is based off of hard research, not conjecture. Everything I do is with a quantitative approach in mind.The 80% is based on how the stock performs AFTER the announcement, not prior. IV gives us, in real-time what the market expects for an expected move and as we know through research IV is often inflated. We’ve had great success with this approach for five years running now. Just keeping it simple and allowing the math to dictate our decisions. I hope this helps and thanks again for writing in.

      Reply

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