Top Earnings Options Plays for the Week (1/17– 1/21)

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Earnings season is officially upon us.

Next week kicks off with Goldman Sachs (GS), Morgan Stanley (MS) and Bank of America (BAC) due to report. Both MS and BAC are on my radar, as are a host of others due to report later in the week.

Netflix (NFLX) will certainly garner attention, and if the implied volatility is high enough and I can place a trade outside of the expected move, well, a trade might just be in the cards. I plan on posting an article Wednesday or Thursday going over a potential trade. Stay tuned!

Remember, risk management is the key to successfully trade earnings. Get in, get out, move on. In almost every case, adjusting is a frivolous task and only leads to additional losses. Allow the law of large numbers to work in your favor by simply keeping your position size at reasonable levels (1% to 5%), which allows you to endure bouts of sequence risk. Moreover, understand that more trades do not equate to more profits. Be patient. Allow the opportunities to present themselves, then take action by applying an options selling strategy that allows you to have a high probability of success. Understand that you might only have 1-3 real opportunities each week.

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)

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Here are a few other top earnings options plays for next week (1/17 to 1/21):

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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 (1/17– 1/21)

  1. Ken on

    I just read your 5-step approach to trading options at earnings. With your shooting for an 80% success rate, may I ask what percentage of your past trades have been profitable? And, second question, what is your average % loss when a trade goes bad? I have never tried this kind of trade before, and I am trying to get a handle on whether the occasional loss wipes out most or all of the successes. Many thanks for all your research and informative articles!

    Reply
    • Andy Crowder on

      Ken,

      Thanks for the question. My win rate has been roughly 87% after well over 100 trades and just over three years of using the approach. It’s all about the law of large numbers. Keeping your position-size in check knowing that losses will be greater than wins, but, if managed appropriately, losing trades should not wipe out entire gains.

      Reply
  2. Steve B on

    Andy, love your content. Have traded ERs pretty well in the past but got blindsided with NFLX today playing a wide Iron Condor and very low deltas (.12 on the short put) that I thought was safe. NFLX 20% down – wow. I expect some bounce tomorrow (when my busted Put Spread expires), but I wonder if you have some suggestions on rolling Put Spreads in this instance to recoup the position over time? Thanks

    Reply
    • Andy Crowder on

      Steve,

      Thanks do much for the kind words. It is greatly appreciated. Regarding your question, this is where position size becomes incredibly important, plus I typically go out one week when I trade a stock that releases earnings after the close Wednesday through the opening bell Friday. I will say that Wednesday is closer to 50/50, but Thursday or Friday releases are almost always the following expiration cycle. This gives me time just in case an anomaly occurs, plus the spread isn’t impacted as much. That being said, losses will always occur, so it just goes back to position-size. Position-size is the real key to being successful trading around earnings as you always want the law of large numbers to work its magic. I hope this helps and thanks again for the kind words.

      Reply

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