High Spreads = No Negotiations
I just took a look at PCLN. I do not think it is a good earnings candidate. The expected move is currently 37.90, and the best options to play are the Mar1 weekly’s since they expire the soonest. Volatility in Mar1 is 76% vs 48% in Mar…nothing extremely special with regard to vol differential.
Open Interest in the Mar1 options is somewhat low. Volume isn’t awful, but could be better.
The bid/ask spread is very high, which translates to a high mid/nat spread in multi leg options strategies. For example, the Mar1 545/550/640/645 Iron Condor has a mid of 2.30 and a nat of 1.40. If you work this spread at the mid it is highly unlikely to fill. This indicates illiquidity, I prefer to trade names that can fill at or within 10 cents of the mid on multi leg strategies.
If the mid/nat spread on that Iron Condor were 20 to 30 cents I would consider trading it since PCLN is such a high priced stock warrants a higher spread. That said, a 90 cent spread is too high.
I’m staying away from PCLN from an earnings trade perspective. Best of luck to anyone that decides to give it a shot.
