Kay decides she wants to put on her first earnings trade in ULTA. She learns she should wait until a day or two before the earnings announcement before she puts on the trade. Tom tells the yutes that when putting on an earnings trade, you can go one of two ways:
- Give yourself a little more time by selling your spread (or iron condor) in the next monthly cycle. This will give you a little more maneuverability (more time to be right), but you’ll have to wait longer for a good profit.
- Sell a spread (or iron condor) in the next weekly cycle for some potential instant gratification.
Kay's bearish on ULTA so she puts on a call spread.
Tom instructs Kay and E that if they’re directional in an earnings trade, they should add the expected move in that cycle to the current strike price, and put their strikes a little further than that. So because ULTA’s expected move is +/- 20 in the next weekly cycle, and the stock’s trading for 320, Kay shoots for strikes a little above 340 (it would be underlying minus expected move for puts).
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