December 6, 2019 Terry’s Tips Trade Alert #4 – Earnings Eagle   Portfolio

COST announces earnings after the close next Thursday, December 12.  The options are pricing I a 3.9% move while the recent average move has been 3.6%.  While this gives us only a small statistical advantage, we have had good luck with COST earnings plays in the past.  The at-the-money 295 calendar buying the 24Jan20 option and selling next week’s option would cost about $3.80 which compares to a $5.25 mark of the 13Dec19 options.  This is not the difference we would like with our formula but this should provide a good comparison to the LULU play which is much better:

BTO 1 COST 24Jan20 290 put (COST200124P290)
STO 1 COST 13Dec19 290 put (COST191213P290) for a debit of $3.22 (buying a calendar)

BTO 1 COST 24Jan20 292.5 put (COST200124P292.5)
STO 1 COST 13Dec19 292.5 put (COST191213P292.5) for a debit of $3.23 (buying a calendar)

BTO 1 COST 24Jan20 295 put (COST200124P295)
STO 1 COST 13Dec19 295 put (COST191213P295) for a debit of $3.15 (buying a calendar)

BTO 1 COST 24Jan20 297.5 call (COST200124C297.5)
STO 1 COST 13Dec19 297.5 call (COST191213C297.5) for a debit of $3.70 (buying a calendar)

BTO 1 COST 24Jan20 300 call (COST200124C300)
STO 1 COST 13Dec19 300 call (COST191213C300) for a debit of $3.52 (buying a calendar)

BTO 1 COST 24Jan20 302.5 call (COST200124C302.5)
STO 1 COST 13Dec19 302.5 call (COST191213C302.5) for a debit of $3.27 (buying a calendar)

BTO 1 COST 24Jan20 305 call (COST200124C305)
STO 1 COST 13Dec19 305 call (COST191213C305) for a debit of $2.95 (buying a calendar)

 
Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.

Terry