- On Friday we previewed this week's earnings of note and showed the 2 week expected moves of each.
- Updated expected moves and some ways to play for today's Disney, Activision, Electronic Arts, Virgin Galactic and Beyond Meat earnings, all after the bell.
Here's some notable earnings after the close, with the times of the report and 2 week expected moves from the options market via OptionsAI technology (all times eastern):
Ways to Play
Why do we focus on the expected move so much? Price targets in context and corresponding strike selection. The expected move is a more practical expression of implied volatility. For example, selling puts at or below the expected move means you'll only be at risk of assignment if the stock drops farther than options have priced. Selling calls versus stock at or above the expected move means you'll only be taken out on a big move higher, above expectations. Same with credit and debit spreads, condors etc. Use the expected move to set your target in context of the market, and therefore your strikes, and you'll realize you are making a bet for or against implied vol.
Using Disney as an example, let's say I'm bullish into earnings and think the stock could get back above $110, I have several ways to express that view, but it starts with seeing where that target stands versus the crowd and the trades to express that view can use the crowd to determine strikes and strategy:
In this case I focus on two spreads, a 105/112 debit spread and a 105/99 credit put spread (both expiring May 15th). The target is the same, but I'm able to think more binary in how I express it. Am I bullish enough that I'm willing to take a higher breakeven than where the stock is trading now, for a higher payout at my target? Or am I simply not bearish, and therefore willing to exchange a risk/reward ratio for higher probability on the short put spread.
The target itself is also a view on volatility, in context of the crowd. BYND has moved about 20% on earnings its past 4 quarters. It has super high short interest, yet the options market is only pricing about a 15% move over the next 2 weeks. If I'm bullish in BYND, I can target beyond the crowd with a target up 20%:
In this case I can focus on two different debit call spreads, one, the 99/120 that has a lower breakeven but allows for profits above the expected move, to my target. The other one is totally out of the money, and a bit of a long shot, playing for a move from the expected move to my target, it has very low probability of profit around 27% but obviously very high profit potential versus cost.
Finally, let's say I think expectations in both directions are overpriced. Using SPCE as an example, with a 20% expected move over the next 2 weeks, we can simply do a neutral price target:
In this case I am using the expected move to set strikes. In both cases, the iron condor and the iron butterfly are profitable between the expected move levels. Beyond that, these trades lose money, between, they make money. The fly targets a specific area, $17, and profits trail off towards the wings. Condor makes its max gain anywhere between its short strikes, and profits trail off at its breakevens
These are simply examples, everyone will have their own price targets, but they are intended to show how expected move and price targets can reduce the complexity of options and make the key decisions, which direction and what magnitude much easier to understand.
Give OptionsAI technology a try with your own price target and demo trades in AAPL HERE