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Eye on Earnings - Spread trading Alphabet, Starbucks, Boeing.
2 min read

Eye on Earnings - Spread trading Alphabet, Starbucks, Boeing.

Eye on Earnings - Spread trading Alphabet, Starbucks, Boeing.


The big earnings week continues with Alphabet (GOOGL) and Starbucks (SBUX) after the close, and Boeing (BA) tomorrow morning. Typically, the earnings moves priced by the options market is laser focused on earnings reports, predicting idiosyncratic moves on the events detached from overall market volatility. Not in these times. Look no further than this morning's batch of earnings reports, as Southwest (LUV), Caterpillar (CAT) and Pepsi (PEP) all trading with very small post earnings moves. Larger trends are moving stocks by sector, earnings reports seem to be confusing matters at best, as management has no clue what the next year will look like.

The Set-Up

Here are the 2 week expected moves in 3 stocks of note reporting today and tomorrow morning, from OptionsAI technology:

Boeing's the stock with the slightly more eye-popping expected move, and that makes sense as it's down 12% in the past 2 weeks. This was a stock that was above $300 in January, and below $100 in March. But options prices right now are contracting to reflect a market not seeing +5% moves every day. There will be exceptions on particularly shocking reports, but as far as trading, you have to take what the market is giving you.

Ways to Play

Here's an example in BA, using a bullish price target on the upper expected move, 2 weeks out.

From OptionsAi technology:

In this case a bullish target is established, in line with the expected move on May 15th of ~$145.50.

There are several ways to play for a move higher on the event and over the next 2 weeks, including buying a (bullish) call spread, or selling a (bullish) put spread. Both are bullish, but the decision there is one that tries to balance what type of move can realistically be expected. In the case of the call spread, it is that a move higher would be somewhat sharp and get above the higher breakeven. In the case of the short put spread, that the move higher not need to be sharp, and simply "not going down" is fine too.

Bearish targets produce similar results and the bullish target above is simply an example. The point is that options allow for precision instruments, versus the blunt instrument of buying or shorting stock. And multi-leg strategies are more precise that single leg. And they offer the benefit of defined risk. The cost of the long spread, and the risk of the short spread is the total amount at risk if wrong.

Give OptionsAI technology a try with your own price target in AAPL HERE

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