How To Find Options Trades This Earnings Season

Earnings season kicks off this week with some big name companies due to report earnings on Friday including Citigroup (C), Bank of America (BAC), JP Morgan Chase (JPM), Delta Airlines (DAL), Wells Fargo (WFC), Blackrock (BLK), Unitedhealth Group (UNH) and First Republic Bank (FRC).

In today’s article, we will look at how to use Barchart’s Screener’s to find option trade ideas for this earnings seasons.

Stock Screener

The first step is to use the Stock Screener to find companies with good option volume and upcoming earnings. Here’s a good scan that you might like to use:

• Total Call Volume greater than 2,000
• Market Cap greater than 40 billion
• Latest Earnings Date Between January 10 – January 20

This will give us companies with earnings releases this week that have good option volume. Trading stocks with good option volume is important because it will mean it is easier to get filled on trades and the bid-ask spread is likely to be lower.

The above screener gives us these results:

Now we can pick the company or companies we want to trade and decide on a strategy. Let’s look at a couple of examples.

UNH Bear Call Spread

Let’s start with UNH and run that through the Bear Call Spread Screener.

Let’s use the first line item as an example. 

Using the January 20 expiry, the trade would involve selling the 500 call and buying the 520 call. That spread could be sold for around $4.03 which means the trader would receive $403 into their account. The maximum risk is $1,597 for a total profit potential of 25.23% with a probability of 71.3%.

The breakeven price is 504.03. This can be calculated by taking the short call strike and adding the premium received.

The spread will achieve the maximum profit if UNH closes below 500 on January 20, in which case the entire spread would expire worthless allowing the premium seller to keep the $403 option premium.

The maximum loss will occur if UNH closes above 520 on January 20, which would see the premium seller lose $1,597 on the trade. 

Moving down towards the bottom of the table, we see that the trades have a lower Max Profit Percentage, but a higher probability of success. There is always a trade off with options.

Traders can also use the Iron Condor Screener if they believe the stock will stay flat, or the Bull Put Spread Screener if they have a bullish outlook.

Conclusion And Risk Management

Trading options over earnings can be risky and is not recommended for beginners. Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. Short strangles involve naked options and should be avoided by beginner traders.

Short-term trades also have assignment risk, so traders need to be aware of that possibility.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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