SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Alcoa Earnings Report July 20th, 2022


Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here: https://youtu.be/oYIEM62crYo.

Let's start by running a scan on stocks reporting earnings this week, which includes the total option volume indicator, sorted from greatest to least.

 

tmUPLKzVVtduprkFBOtVe3a0_CQ9Z6SsOkXHdNL1

 

Focusing on Alcoa, as we click through, we see this mid-cap company in the aluminum industry reports earnings on Wednesday, July 20th, after the close.

 

L3NSHMZOOIWly0fXHU2WpQ1Z35AZYeB4jpEsX3fE

 

The earnings and financials tab takes us to more detail showing the options market expecting a move of 7.9% in either direction. This move was breached in 5 out of the last 12 earnings.

 

yBSz9qWCScVHWmOoMZFWlxYVUArRuo1YiWiEM8OL

 

During that time, the post-earnings move was outside of the implied range 5 times. In those cases, long straddles were profitable. The rest of the earnings moves likely yielded profitable short straddles. We can overlay quarterly financial data by clicking on the ratios below the earn move graph. Let's look at the PE ratio, which is the stock price divided by the trailing twelve months earnings per share.

 

FwoRIcE3YvO368w8ALKtsp6NMlWakS1vDVWDz-yI

 

For AA, the current PE ratio is 4.9, which is 105.3% over the average for the last twelve earnings observations. Returning to the overview tab, we can quickly run a scan to find the best option trades. Since earnings are right around the corner, we scan for neutral strategies, then filter the scan results by S%, or smoothed edge, by setting it between negative and positive 3%.

 

5T5MO88VtKM_DEDy4rOIFL53fZbGqXFLLiKvt0ck

 

This helps narrow the results to trades that are fairly priced. The highest ranked trade is a Long Put Calendar with strikes at 45, expiring on Friday, October 21st and Friday, August 26th, for a debit of $1.95.

 

WOql4OXg1u48YrjikJDWxG7B8hR_8Ox6km9CLm_d

 

By pulling up the trade, we can see the theoretical values in more detail. The distribution edge, found by the expected value of the payoff picture on the stock's historical distribution, has an edge of 36.4%. The forecast edge, which is derived from historical volatility, has an edge of -8.1%. Lastly, the smoothed edge, which is calculated by drawing a best fit curve through the monthly implied volatilities, has an edge of 2.0%. The edge is relative to the mid-market price of the trade. Greater positive edges are a theoretical benefit to the trader. We can also look at the payoff graph. The reward to risk divides the max gain by the max loss. Here the 1.4 to 1 is the ratio of the max gain of $278 to the max loss of $-198. There are two break evens for this Long Put Calendar at 38.03 and 55.15. The total Greeks and ThinkOrSwim code complete the information on the trade analysis popout.

 

XWjskrDmUTqQEjLH9KjTeQx7NEicD0SO2Ko3PKk7

 

Next, let's look at this trade in the trade builder. Over the last month, the stock price fell 11.0%, while the thirty-day implied volatility fell 4.2%. The average slope of the trendlines is negative. The heatmap on the right side of the graph is green where volatility and slope are undervalued, and red where they are overvalued. In this case, short term IV and slope are neutral, while the long term is neutral.

 

geIgO3UPUQqLbu6xDlApsS-4a50ZrX5BUnsSmqD9

 

We can also see this trade overlaid on the monthly implied volatility graph in the chain tab. The legs for this trade are circled. For any questions or issues with the article, please contact otto@orats.com. To subscribe to the dashboard, please visit https://orats.com/dashboard
 

Disclaimer:

The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.

 

About the Author: Matt Amberson, Principal and Founder of Option Research & Technology Services. ORATS was born out of a need by traders to get access to more accurate and realistic option research. Matt started ORATS to support his options market making firm where he would hire statistically minded individuals, put them on the floor, and develop research to aid in trading options. He is heavily involved with product design and quantitative research. ORATS offers data and backtesting on a subscription basis at www.orats.com. Matt has a Master’s degree from Kellogg School of Business.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • SPX Options vs. SPY Options: Which Should I Trade?

    Trading options on the S&P 500 is a popular way to make money on the index. There are several ways traders use this index, but two of the most popular are to trade options on SPX or SPY. One key difference between the two is that SPX options are based on the index, while SPY options are based on an exchange-traded fund (ETF) that tracks the index.

    By Mark Wolfinger,

    • 0 comments
    • 435 views
  • Yes, We Are Playing Not to Lose!

    There are many trading quotes from different traders/investors, but this one is one of my favorites: “In trading/investing it's not about how much you make, but how much you don't lose" - Bernard Baruch. At SteadyOptions, this has been one of our major goals in the last 12 years.

    By Kim,

    • 0 comments
    • 883 views
  • The Impact of Implied Volatility (IV) on Popular Options Trades

    You’ll often read that a given option trade is either vega positive (meaning that IV rising will help it and IV falling will hurt it) or vega negative (meaning IV falling will help and IV rising will hurt).   However, in fact many popular options spreads can be either vega positive or vega negative depending where where the stock price is relative to the spread strikes.  

    By Yowster,

    • 0 comments
    • 786 views
  • Please Follow Me Inside The Insiders

    The greatest joy in investing in options is when you are right on direction. It’s really hard to beat any return that is based on a correct options bet on the direction of a stock, which is why we spend much of our time poring over charts, historical analysis, Elliot waves, RSI and what not.

    By TrustyJules,

    • 0 comments
    • 471 views
  • Trading Earnings With Ratio Spread

    A 1x2 ratio spread with call options is created by selling one lower-strike call and buying two higher-strike calls. This strategy can be established for either a net credit or for a net debit, depending on the time to expiration, the percentage distance between the strike prices and the level of volatility.

    By TrustyJules,

    • 0 comments
    • 1,477 views
  • SteadyOptions 2023 - Year In Review

    2023 marks our 12th year as a public trading service. We closed 192 winners out of 282 trades (68.1% winning ratio). Our model portfolio produced 112.2% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month and one essentially breakeven in 2023. 

    By Kim,

    • 0 comments
    • 5,891 views
  • Call And Put Backspreads Options Strategies

    A backspread is very bullish or very bearish strategy used to trade direction; ie a trader is betting that a stock will move quickly in one direction. Call Backspreads are used for trading up moves; put backspreads for down moves.

    By Chris Young,

    • 0 comments
    • 9,487 views
  • Long Put Option Strategy

    A long put option strategy is the purchase of a put option in the expectation of the underlying stock falling. It is Delta negative, Vega positive and Theta negative strategy. A long put is a single-leg, risk-defined, bearish options strategy. Buying a put option is a levered alternative to selling shares of stock short.

    By Chris Young,

    • 0 comments
    • 11,137 views
  • Long Call Option Strategy

    A long call option strategy is the purchase of a call option in the expectation of the underlying stock rising. It is Delta positive, Vega positive and Theta negative strategy. A long call is a single-leg, risk-defined, bullish options strategy. Buying a call option is a levered alternative to buying shares of stock.

    By Chris Young,

    • 0 comments
    • 11,519 views
  • What Is Delta Hedging?

    Delta hedging is an investing strategy that combines the purchase or sale of an option as well as an offsetting transaction in the underlying asset to reduce the risk of a directional move in the price of the option. When a position is delta-neutral, it will not rise or fall in value when the value of the underlying asset stays within certain bounds. 

    By Kim,

    • 0 comments
    • 9,662 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs