Options Action: Earnings in focus

Key Concepts:

• Implied Volatility (Options Market): The market's expectation of how much a stock price will move.
• Earnings Season: The period when many public companies release their quarterly earnings reports.
• Put Spread Collar: An options strategy that combines buying put options, selling put options at a lower strike price, and selling call options to generate income and hedge against downside risk.
• Hedging: Reducing the risk of adverse price movements in an asset.
• Moving Average (150-day): A technical indicator that smooths out price data by creating an average price over the past 150 days.

Bank Earnings (JPMorgan):

• The options market is implying approximately a 3% move for JPMorgan (JPM) following its earnings report.
• This implied move is consistent with the historical average move of around 3.6% observed over the past eight quarters.
• JPMorgan is described as "the biggest and the best" within the banking sector.

Netflix Earnings:

• The options market is anticipating a larger move of about 8% for Netflix (NFLX) after its earnings announcement.
• Netflix is characterized as an "unregulated utility" due to its strong business model.
• The speaker expresses a positive view on Netflix as a business.
• The speaker notes that the current stock price is significantly above its 150-day moving average, suggesting it may be overextended.

Hedging Strategy for Netflix:

• The speaker recommends hedging Netflix positions going into earnings, particularly for those with large holdings.
• The suggested strategy is a "put spread collar" using August 22nd weekly options.
• Specific Options Trades:
  • Buy the 1225 puts for August 22nd.
  • Sell the 1125 puts for August 22nd.
  • Sell the 1325 call for August 22nd.
• Rationale: This strategy provides approximately 8% upside potential while also offering 8% downside protection.

Put Spread Collar Explanation:

• Buy 1225 Puts: This provides downside protection if the stock price falls below $1225.
• Sell 1125 Puts: This generates income to offset the cost of buying the 1225 puts, but it also obligates the seller to buy the stock at $1125 if it falls below that price.
• Sell 1325 Call: This generates additional income and caps the upside potential at $1325.

Conclusion:

The speaker analyzes the implied volatility for JPMorgan and Netflix earnings, suggesting a hedging strategy for Netflix using a put spread collar to protect against potential downside risk while still allowing for some upside potential. The strategy aims to balance risk and reward in anticipation of the earnings announcement.