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April 11, 2022
This week is a shortened trading week with the US market closed on Friday, April 15th. However, that doesn’t mean we can take a break quite yet because earnings week starts off this with reports coming from companies like JPMogan Chase, Wells Fargo, Goldman Sachs, BlackRock, Morgan Stanley, Citigroup, and PNC. We’ll also see earnings from Delta Airlines and United Health.
The March Consumer Price Index is also set to be released on Tuesday. The annual rate of consumer inflation is projected to climb to 8.3%, up from 7.9% in February. However, despite rising prices, consumer spending and retail sales are projected to report higher numbers in March than in February.
With three weeks to go before a projected half-point rate hike from the Fed, we’re likely to see small bouts of dip-buying followed by bouts of profit-taking, leaving us with little in the way of momentum to either side.
Premium sellers crave volatility and we’re sure to get that this week with earnings. There are several trading techniques that can be done depending on your goals. If you own the stock already and want to hedge against a downside move, buying a put can help offset losses. Later this week we’ll talk about using inverse ETFs to hedge your overall account, but today we’re going to talk about an options strategy called the Iron Condor. See, this is why you should get into trading options tactics. They all have fun names! More on that below…
The strongest sectors based on a 1-week relative performance is Healthcare, Consumer Defensive, and Energy.
Meanwhile Healthcare, Consumer Defensive, and Utilities are performing the best over a 1-month period.
JP Morgan – earnings trade using an Iron Condor
If you know what a stock price will do after learnings, by all means, let me know. How many have you have been burned by companies releasing better than expected numbers only for the price to sink after earnings because a company reduced its outlook or maybe a company you invested in missed on earnings expectations but the price still went up because they didn’t miss as bad as expected? It’s enough to make you mad.
One approach is the Iron Condor, which is made up of a put credit spread and a call credit spread. A spread is made up of two options. You sell an option at a certain price and buy an “insurance” option at a different price. So an Iron Condor involves buying and selling a total of four option legs.
Most brokers will have an expected move range on the options chain window. The +/- numbers to the right show an expected move range for JPM of +/- $7.924, meaning there is a 68% chance that JPM (currently $133.49) will roughly be between $125.49 and $141.49 by the 22nd of April 2022.
If you think that JPM will stay within its expected range the week of earnings, you could look to sell options at the expected range. For example:
Sell to Open (STO) 22 Apr 22 $141 call
Buy to Open (BTO) 22 Apr 22 $146 call
Sell top Open (STO) 22 Apr 22 $125 put
Buy to Open (BTO) 22 Apr 22 $120 put
This spread (before the market opened) was showing a credit of $117 per contract with a max risk of $383. As long as JPM stays between $125 and $141 by April 22, the trader will get to keep the entire $117 premium they received when they put the trade on.
If your trade is showing profits before the expiration date, you can always buy back the spread at any time.
How about you? What’s your favorite way to trade during earnings season? Let us know!
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