Dan Passarelli is an author and the founder of Market Taker Mentoring LLC, the home of personalized, one-on-one options mentoring.
Usually, I advise against playing earnings. But, here’s a nice little speculative play that is hard to ignore.
The CSCO March 22 straddle bought around $1.75 or lower. To buy this straddle a trader would buy both the CSCO March 22 Calls and the CSCO March 22 Puts as one trade for a total cost of $1.75 or less.
CSCO’s earnings report is on Feb. 9. Implied volatility is high, BUT this straddle only costs $1.75. The last three earnings reports resulted in big moves. If that pattern continues, this straddle can blast thru the at-expiration break evens with ease.
Why the March and not the Feb? The Feb implied volatility is way too high. For an extra 15 or 20 cents, you can get a whole extra month of time for this trade to work out. Usually with straddles, it’s best to take profits quickly and NOT wait until expiration. But, if CSCO doesn’t get the earnings move expected, it is easy to imagine the stock moving $1.75 or more by March expiration.
Whether it’s for one week or one month, this is a fairly conservative spec-play that could result in some healthy profits.
Dan Passarelli of MarketTaker.com writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”