Our Earnings Alert System has been quiet, but it’s about to be “game on” yet again. AA kicks off earnings season tomorrow after the bell.
Typically earnings season starts a bit slow. AA kicks the season off, then it’s quiet for the remainder of the week. Next week is when things start to get exciting. The increased trade activity tends to last 4-6 weeks, then earnings season ends and earnings trade frequency fades with it.
We don’t always trade AA earnings, but we always look for an opportunity. If AA meets our strict earnings trade criteria and we like a particular options strategy, we will definitely share it tomorrow. If not, expect the fun to begin very soon.
Here’s to another successful round of earnings trades!
AA kicks off earnings season after the close. Is there an earnings play? Let’s analyze based on the current 10.25 price point on AA:
- Oct2 Weekly 10 Straddle @ 0.75
- Oct2 Weekly 10/11 Strangle @ 0.40
- (0.75 + 0.40)/2 = 0.575, which is the approximate expected move in either direction
Now that we know the approximate expected move, let’s see if there is a solid Options play.
- Oct2 Weekly 9/10 Bull Put Spread @ 0.22 is no good; break even (b/e) is not outside expected move and price on less than one third the width of the spread.
- Oct2 Weekly 11/12 Bear Call Spread @ 0.10 is no good for the same reasons; b/e is not outside expected move and price on less than one third the width of the spread.
- Oct2 Weekly 9/10/11/12 Iron Condor @ 0.32 is a worthy candidate. It’s not quite one third the width of the spread (0.33), but close enough to consider. Lower b/e is 9.68, which is right at the lower end of the expected move. Upper b/e is 11.32, which is 50 cents above the upper end of the expected. We like having more room to the upside than downside because we feel there is more upside than downside here.
- Oct2 Weekly 10/11 Short Straddle @ 0.40 looks nice if you are comfortable with no defined risk. Lower b/e is 9.60, upper b/e is 11.40…both outside the expected move. Probability of success is about 50%, which is not quite as high as we like when going with a naked strategy.
Lastly, it may be worth it to take a stance on AA here. Given we are in the bullish camp going into this earnings release, our “stance trade” of choice is the Oct2 Weekly 10/11 Bull Call Spread @ 0.40. That said, we will likely play the Iron Condor if the market allows it to fill before the close.