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Zoom (ZM) earnings and ways to play
3 min read

Zoom (ZM) earnings and ways to play

Zoom (ZM) earnings and ways to play

Overview

  • Zoom reports 1st quarter earnings Tuesday after the close.
  • Consensus EPS $0.09 on revenue of $203.02 mil.

The Set-up

ZM options are pricing quite the move, with the majority of the stock's 2 month expected move pricing near term to capture the earnings event. Here's the 2 month expected move from OptionsAI technology followed by a zoomed in 2 week view:

2 month expected move:

2 Week expected move:

Options traders are expecting ~15% moves one way or the other over the next 2 weeks and 22% over the next 2 months. Considering that the stock is up 13% today alone (pre-earnings) it's hard to tell how to price an earnings event versus general stock craziness. Regardless, implied volatility will collapse a fair amount after the event, at least temporarily, because that how it works.

Ways to Play

No matter your timeframe that volatility contraction needs to be taken into account. Directional ideas can be either short premium or if long premium, multi-leg to try to lay off some of the high IV. And those looking to isolate the earnings themselves to outright sell vol need to keep a fairly short time frame as the stock has proven it will make large directional moves absent news.

Bullish

The even itself is an unknown, so those looking to ride the stock higher may want to look out to July. Here's a price target on the expected move for July expiration, about $245, and the trades returned:

The 200/240 put spread breaks even at $214.70 in the stock and has a very high probability of profit with vol so high. (The expectations of movement on earnings increases the likelihood of a $15 move so much that the probability approaches 50%. Once vol collapses after earnings a breakeven of $15 away will likely be closer to 40%.)

Here's how that trade looks on the chart, from OptionsAI technology, the call sale on the 240 line is about $11, it'd be tough to be bullish and not want to sell that to finance your bullishness:

Bearish

Because the stock is so much higher into the event (at least as of today) I think it makes sense to buy some time for those bullish and looking for further gains. However, if someone was looking to fade the move and play for the stock to stay at or below $200, a shorter time frame may make sense, and selling premium may make sense:

Here's how a short 200/225 call spread looks on OptionsAI:

This trade is essentially fading this move higher into earnings, with a breakeven of $208, and decent risk/reward, risking $1200 to make $800 if the stock is below $200 on June 19th.

Neutral

If one wanted to fade the entire earnings move, selling to both the bulls and the bears, again, a short time frame probably makes sense. Here's a neutral target for June 19th expiration, from OptionsAI technology:

Here's how the Condor reflects the expected move, risking about 1/1 that the stock stays within its expected move range:

See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Previously:

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