On Friday we did our weekly check in on expected moves for this week's earnings reports. A couple big tech names report next with CSCO after the close today, and AMAT after the close Thursday, so let's check back in with those stocks (each a bit lower now) and see their set-ups and possible ways to play.
I wanted to look at the 1 month expected move because you can clearly see that both stocks have been trading in a tight range the past month, and the expected move of each is pricing a slight breakout each way over the coming month:
Ways To Play
One instinct is to sell that move with a neutral target, but zeroing in on just the earnings may be missing what's happening in the overall market with today's selloff. For instance, CSCO is down 4% with the market today. So simply fading the earnings move could be correct in the theory, but it might not matter if the broader market follows through or reverses hard tomorrow. For instance, here's a neutral target isolating Friday's expiration in CSCO, from OptionsAI technology:
The Condor strikes are set at the expected move but those strikes seem tight considering what the stock is doing today (without an earnings report to account for).
But going out another week spreads the strikes out more. Here is what CSCO looks like next Friday with a neutral target, from OptionsAI technology. The short strikes are set at 39 on the downside and 44.50 on the upside, a lot more breathing room.
And here's the same thing in AMAT, a neutral target for May 22nd expiration:
Here's what trade looks like on the chart, you can see it bookends the recent range.
Of course how much time you buy doesn't matter if the stocks move big on earnings. But if they don't this is a good way to fade the event itself with good risk reward. It's essentially a bet against both the bulls and the bears.
Trade management becomes crucial though, because as soon as the earnings come out the thought process has to return to the broader market and any sustained move in either direction can become a problem for a neutral strategy.
And either of these strategies, either the butterfly or the condor can be re-centered to take a slightly bullish or bearish lean as well.
See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE