FSLR Earnings Trade

FSLR reports after the bell today. The stock is liquid, as is the options market.  Options predict a move of 3.20 on the earnings event.  Mar1 weekly options expire in 3 days with 125% implied volatility (IV), making them the best candidate for an earnings trade.

I am once again keeping it simple by selling the Mar1 32/41 Strangle (for each spread sell one Mar1 32 Put, sell one Mar1 41 Call).  I filled @ 1.00 credit, small position as with any earnings trade.  The break evens of 31 and 42 are slightly greater than 1.5x the expected move.

As a general rule of thumb, I look for 2-3% the price of the stock as a credit when going 2x the expected move, and 3-4% the price of the stock as a credit when going 1.5x the expecd move.  In this case, the 0.69 price on the 31/42 Short Strangle (which takes you 2x the expected move) was just shy of 2% the price of the stock while the 32/41 Short Strangle (which t you 1.5x the expected move) was just over 3%.  This was the primary reason I went with the 1.5x strategy.

I personally think there is opportunity from a directional perspective here on the bullish side, but as usual I chose a strategy based on expected move.  In the event I were to play a bullish direction trade here, I would have gone with the Mar1 34/35 Bull Put Spread @ 0.33 credit (buy one Mar1 34 Put, sell one Mar1 35 Put).

Good luck if you decide to trade FSLR, or any of the other earnings candidates.  SODA, JOY, SPLS, and COST are also liquid earnings candidates today.