When using the Diagonal Condor Earnings Strategy, one of the things we like to find is a stock about to announce earnings where the options have priced in a post-announcement price fluctuation which is greater than the historical average of the post-announcement changes for that company.
Our goal is to create two diagonal spreads at a credit (or slight debit) which allow for a profit to be made if the post-announcement fluctuation is within the historical average amount. In the past few weeks, we have placed spreads that met these criteria on several companies, including Carmax (KMX), TD Ameritrade (AMTD), and Red Hat (RHT), and these plays were all profitable, with returns from 30% to over 70% including commissions in a single week.
This week, we are looking forward to taking a position in Mastercard (MA) which announces earnings before the market opens on May 2. The 4May18 options have priced a 3.8% post-announcement price change while the average change for the last eight quarters has been only 1.1% (about $2 when the stock is trading about $175).
Here are the trades we made this week using . . .
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This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.
Terry
Micron Technology (MU) Retreats - Can it Hold Above the Psychological $50 Handle?
Micron Technology has posted an impressive gain in the early year and several analysts are expecting more upside. The following two articles provide the details behind this view – 3 Stocks That Could Double Your Money and Bull of the Day: Micron (MU).
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Facebook (FB) announces earnings after the close on April 24, 2018. I have submitted an article to Seeking Alpha outlining the reasons I believe that the stock will trade higher (or at least, not lower) after the announcement compared to its current level. If they accept my article for publication, I will send you the link. If they don’t accept it in a timely basis, I will send it along to you.
Here are the trades we made this week in accordance with this positive post-announcement outlook using the Diagonal Condor Earnings Strategy that is outlined here in case you missed it earlier. Note that one of the diagonals is being placed at a slight debit, a small deviation from the strategy. This should not be a problem because the 1Jun18 options are considerably higher than this debit, and will surely hold up enough so that one of the two spreads is guaranteed to be a serious gainer.
BTO 1 FB 1Jun18 160 put (FB180601P160)
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