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Uber (UBER) earnings preview and credit spreads.
3 min read

Uber (UBER) earnings preview and credit spreads.

Uber (UBER) earnings preview and credit spreads.

  • Uber (UBER) reports earnings after the close (~4:05pm)
  • Options are pricing in about a +/-7.2% (about $3.50) move by tomorrow's close
  • Prior earnings (in reverse chronological order) saw actual moves of +6%, +9.5%, -9.8% and -6.8%.

The Setup

Here's a 1 month expected move chart with this Friday's move highlighted, via Options AI technology:

Ways to Trade

Neutral Flies and Condors - First, let's look neutral with credit Iron Condors and Flies based on the expected move, isolating Friday:

Zooming in on the Iron Condor, in this case it's a +31.5p/-32p/-37.5c/+38c expiring this Friday. It's just worse than a 1 to 1 risk/reward ratio (1 to 1 would be risking .25 to make .25) with a breakeven near 31.75 on the downside and 37.75 on the upside. Notice those breakevens are just outside the expected move from above.

We can make take the width of the individual spreads from $0.50 to $1 and get the breakeven a little further out with a slightly worse risk/reward ratio, risking about 0.60 to make 0.40.

Bullish and Bearish Credit Spreads - First let's look at a bullish view, in line with the expected move for Aug 21st expiration, using a (bullish) credit put spread:

This is selling a 2 dollar wide put spread risking $115 to make $85 with max gain above 34.50 in the stock. This is bullish by simply not being bearish, its higher than 50% probability of profit are based on selling premium to the bears.

Now to bearish, selling a (bearish) 2 wide call spread:

Similar risk reward.

Summary

It's possible to express a bullish, bearish or neutral view entirely using credit spreads. This is a way to avoid owning high implied volatility into an event. But it makes some assumptions. Yes, implied volatility will be lower following an earnings event, but the event itself is binary based on the expected move. It doesn't matter if implied volatility is lower if Uber moves more than its expected move when you've sold a condor. And of course when selling a credit spread directionally, it doesn't matter what vol you sold if the stock moves against you beyond the expected move.

What credit spreads do allow for though, is a non binary result in that you have a 3rd direction. If you sell the credit spread directionally you can get the direction right, and you can be right even if wrong if the stock goes sideways. And in the case of the condor you can be right at either expected move, as long as it doesn't go beyond. So you have max gain if the stock goes sideways , or even if it moves in either direction, as long as it's inside the expected move.

This is simply an example using Uber, the same logic can be applied to any stock and the expected move is what it is, Uber could move in line with it or it could make a big move, but the risk/reward and probability of the trades already reflect that.

Previously:

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