Earnings Primer: 2/8/22

Earnings season is back in full swing and we're off to a great start, going 3/3 and collecting about $500 over the last few days. Let's take a look at what's coming up this afternoon with APPS, CRSR, and LYFT


APPS:

Current price: 43.76

MMM: $8.37 (19.13%)

Expected range: 35.39 - 52.13


Here is the 180d chart with the expected range outlined in red. So while 19.13% seems like a pretty significant move, it really isn't much compared to how volatile this stock has been over the last 180 days.

Because of that, and with the upside to the high of $93.98 as seen back in November, I would avoid a bearish trade on this one because it seems like it could be blown out. What you'll notice on the chart above is that the low on the stock of 35.55 actually falls just above the low end of the expected range. That sets up pretty nicely for a bullish trade at that level so let's take a look at premium on puts below 35:

You'll see some very nice RoR numbers in this range. We like to target 1% RoR, which can be found at the $30 price level and falls $5 below the low end of the expected range. I think those numbers work out very nicely.


So if I were to make a trade here I think selling 30p is basically "by the book" for what we do in here. With that said though, there is one thing that makes me a little hesitant. Let's take a look at the APPS 3y chart:

Just 3 years ago APPS was trading at $2.59/share. Now that doesn't always mean it's going to go back to that level, but there definitely is some decent downside potential on this one. Will it happen in the next 4 days? Probably not. But the idea is we always want to sell cash secured puts on stocks we'd be comfortable owning at that price. I'm not sure a full position of APPS at $30/share is something I'd be terribly comfortable with for the long haul after some of the drops we've seen from stocks that had similar run ups.


So for now I'm leaning towards selling maybe a couple of 30p, but I would want it to represent less than 5% of my account fully cash-secured to avoid taking on too big of a position if this thing really does move south on us.


CRSR: Current price: 19.86

Expected move: $3.02 (15.21%)

Expected range: 16.84 - 22.88


This is one where I like the stock, so my first instinct would be to sell 17.5p on it. However let's take a look at the full picture and see what the expected range looks like on the 180d chart:

So similarly to APPS we see a chart that has some serious upside above the top end of the expected move so I would caution a bearish trade. The low on the last 180d is 17.68 which falls safely above the low end of the expected range at 16.84. Additionally, CRSR IPO'd at roughly $15/share so it doesn't have the same issue we saw with APPS where it had some big time potential downside. For that reason, I like the idea of a bullish CRSR trade.


With option strikes at $2.50 intervals, that really leaves us with 2 options. The 15p or the 17.5p.


As of right now, the 17.5p offers $0.56 (3.34% RoR) and the 15p offers $0.16 (1.11% RoR). The only other important note here is that CRSR only has monthly options, so these expire on 2/18 rather than this Friday, 2/11.


With how volatile the market has been and that low end of the expected range falling below 17.5, I think that the 15p are the better, safer move here. We still get roughly the return we're looking for and that $2.50 of additional cushion is pretty significant.


LYFT:

Current price: 40.03

Expected move: $6.08 (15.19%)

Expected range: 33.95 - 46.11


Another name with some big time volatility priced into these options. Let's take a look at the setup.

What you'll notice, as indicated by the geometrically imperfect circles I've drawn, is that the expected range nicely lines up with a level of support/resistance on the top end. That makes a pretty strong case that options sold above the 46 level on the call side will expire worthless.


On the bottom end of the range it's actually a somewhat similar story. The 180d low of 33.94 is one cent off the low end of the expected range at 33.95. So we could expect to see some support down at that level. This type of setup is actually really nice for an iron condor since we have support/resistance at both the top and bottom end of the expected range.


A 32/34/46/48 iron condor offers a credit of $0.73, which means each condor you sell would give $73 of max profit for a potential max loss of $127. Not a terrible return right there.


So if you're someone who has a little less buying power on hand, this might be a solid way to be a little more capital efficient and take advantage of some big time implied volatility.


I prefer to keep things a little more simple so a cash secured put is always the first place I'll look. You can find 1% RoR all the way down at the 31p, which offers 1.27% RoR and the 30p behind it offers 0.96% RoR.


Back in Nov-20 there was a little gap on the chart from 34 down to 30, so if I had to pick something to be safe it would be the 30p over the 31p. However we always want to keep that golden rule in mind of being sure to not sell cash secured puts on anything we wouldn't want to own. Because of that, I'll sit this one out from a CSP perspective but might hit that iron condor we discussed if I'm looking for a little action at EOD.