This is our fourth suggestion on how to carry out the Diagonal Condor Earnings Strategy on companies which are about to announce earnings. The first two suggestions (RHT and KMX) resulted in 40% gains in a single week when the stock fluctuated only moderately after the announcement. One of these times, the stock is likely to fluctuate more than we would like, and we will be able to put the second part of the strategy to work. This will involve selling out-of-the-money weekly puts and calls over the next few weeks until the initial trade turns into a net gain.
This week’s choice is Facebook (FB). Facebook announces earnings after the close on April 24, 2018. I have submitted an article to Seeking Alpha outlining the reasons I believe that the stock will trade higher (or at least, not lower) after the announcement compared to its current level. If they accept my article for publication, I will send you the link. If they don’t accept it in a timely basis, I will send it along to you.
Here are the trades we made this week in accordance with this positive post-announcement outlook using the Diagonal Condor Earnings Strategy that is outlined here in case you missed it earlier. Note that one of the diagonals is being placed at a slight debit, a small deviation from the strategy. This should not be a problem because the 1Jun18 options are considerably higher than this debit, and will surely hold up enough so that one of the two spreads is guaranteed to be a serious gainer.
BTO 1 FB 1Jun18 160 put (FB180601P160)
STO 1 FB 27Apr18 165 put (FB180427P165) for a credit of $.25 (buying a diagonal)
BTO 1 FB 1Jun18 177.5 call (FB180601C177.5)
STO 1 FB 27Apr18 172.5 call (FB180427C172.5) for a debit of $.28 (buying a diagonal)
IV of the 27Apr18 options is 47 compared to 31 for the 1Jun18 series (this huge difference is what makes this play so potentially profitable).
Here is the risk profile graph for these spreads assuming that IV for the 1Jun18 series will fall from 31 to 26 after the announcement. I think there is a fair chance that it will not fall that far, and the results could be even better than what is indicated below:
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