Always avoid having an option in place if there is an upcoming earnings report prior to contract expiration. This applies to covered call writing and selling cash-secured puts as it will avoid the risk inherent in the reports. However, once the report passes and any post-report volatility subsides, the underlying security can be utilized in our option-selling strategies if they meet our system criteria. This article will focus on NVDA, the after-market 8/23/2023 earnings report and the opportunities that presented after the report was made public.
The NVDA earnings announcement
On 8/23/2023, after the market closed, NVDA announced earnings that beat market consensus by 31.0%. The stock price moved up the following trading day and option-chains were analyzed for 1-month covered call writing and put-selling post-event opportunities.
NVDA: Post-earnings option-chain on 8/24/2024 with NVDA trading at $476.57
- The 9/22/2023 expiration option-chain was evaluated
- The $490.00 OTM call option showed a bid price of $19.35 (aggressive approach)
- The $465.00 OTM put option showed a bid price of $18.10 (defensive approach)
- The purple cells show adequate open interest liquidity
- The red arrows show reasonable bid-ask spreads
Post-earnings initial call calculations using the BCI Trade Management Calculator
- The spreadsheet shows a 30-day trade, if taken through contract expiration (circled in red)
- The initial time-value return is 4.06%, 49.40% annualized (brown cells)
- The upside potential from share appreciation is 2.82% (purple cell)
- The breakeven price point is $457.22 (yellow cell)
Post-earnings initial put calculations using the BCI Trade Management Calculator
- The spreadsheet shows a 30-day trade, if taken through contract expiration (bottom left)
- The initial time-value return is 4.00%, 48.71% annualized (brown cells)
- The purchase discount, if exercised is 6.18% (purple cell)
- The breakeven price point is $447.102 (yellow cell)
Discussion
After an earnings announcement, assuming the underlying stock or ETF still aligns with our system criteria, there will be multiple opportunities to utilize these securities. We can take an aggressive stance with OTM call options or a more conservative approach using OTM put options. With both strategies, the initial time-value returns must align with our pre-stated goals.
BCI Expected Price Movement Calculator
The Expected Price Movement Calculator is designed to generate an approximate projected trading range for the underlying security, specific for selected contract expiration date. The at-the-money implied volatility (IV) of the stock or ETF (exchange-traded fund) is used to achieve this valuable information.
Inherent in the spreadsheet is a conversion formula that recalibrates the annualized IV stat into one specific for the contract being traded. Easily accessed option-chain data is entered into the white cells at the top of the spreadsheet and calculations will appear in the yellow cells below.
This tool will yield upper and lower ends of the trading range during the option contract being traded with an approximate 84% probability of accuracy.
To purchase the BCI Expected Price Movement Calculator, click here.
Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:
Alan,
I’m looking forward to another good year. Thanks for putting out such a great product.
Paul
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Hello Alan,
Looking at option pricing today (see attachment), expiration day , and you chapters on rolling up and out. I don’t understand the large time value still in the price , only a few hours to go ! In your book it seems the prices are tighter??
Is there a tool to check the price reality being quoted ? I’d assume it would move according to delta but that doesn’t seem to be the case . The brokerage is IB .
I enjoyed the book but the market doesn’t seem to move as expected!!
Regards,
Ian
CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.
Ian,
I will start with a couple of disclaimers: I am not an expert on the London Stock Exchange, and I have never researched Rolls-Royce. I am also going to assume the quotes are in USD, not GBP or EUR.
That said, I can make a few comments you may find useful.
1. Option-chains should be viewed during normal trading hours when about to execute trades. This is because market-makers will, frequently, publish large pre-market bid-ask spreads until they can quantify the order flow for that trading day. Was that the case here?
2. Not all stocks/ETFs have favorable bid-ask spreads. The BCI guideline is ” >100 contracts of open interest (OI) and/ or a bid-ask spread of $0.30 or less”. If a security has related options that do not meet these criteria, they may not be good candidates for option-selling.
3. If RR is trading at $304.80 (USD) on expiration Friday, as the markets are about to close, and the $300.00 strike has an ask price of $9.25, I would call IA for an explanation … makes no sense.
Please get back to me when you fill in the blanks.
Alan
Premium Members,
This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 01/19/24.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
https://www.youtube.com/user/BlueCollarInvestor
Reminder: Premium Member’s pricing is locked into your current rate and will never see a rate increase as long as the membership remains active.
Best,
Barry and The Blue Collar Investor Team
Hi Alan:
As an appreciative Premier Member, I inquire of YOUR personal strategy for the top performing non-Select SDR ETFs for monthly AND weekly Covered Call Writing.
If there are videos links you can send me, that would be awesome.
Thanks.
Steve
Steve,
Below is a link to a video I recently produced that should provide the information you are seeking (if not, get back to me).
I’ll, actually, be redoing this video with a larger, more prominent cursor, as the one in the video is a bit difficult to see. For now, here’s the link:
https://youtu.be/BPBDuUYeG7E
Alan
Premium Members,
This week’s Weekly Stock Screen And Watch List has been revised and uploaded to The Blue Collar Investor premium member site and is available for download in the “Reports” section. Look for the report dated 01/19/24-RevA. The reason for the update is that there were two confirmed earnings report date announcements after the close of the market on Friday that were not picked up by our sources until later. The two stocks are LECO and ROL.
Best,
Barry and The Blue Collar Investor Team
Premium members,
A new white paper rolling-out our covered call trades has been published on your member site:
“Calculating Our Rolling-Out Covered Call Trades: 2 Approaches Using the BCI Trade Management Calculator (TMC)”
Login to your member site
Look on the right side of the page (“resources/downloads”
Scroll down to “R”
Alan
New video:
How to Use the Premium Member Reports:
https://youtu.be/hJI3dqsOdn4
Alan & the BCI team
Premium members:
This week’s 4-page report of top-performing ETFs has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.
Premium member video link:
https://youtu.be/EXMO-KwZuJs
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
Alan and the BCI team