After the bell today and before the open tomorrow, we are certainly going to see big names with the likes of Apple (AAPL), Chipotle Mexican Grill (CMG), Coca-Cola (KO), and McDonald's (MCD) reporting earnings among many other names, but these are a few I am looking to trade into and after the earnings.
Apple will garner the most attention, and I will play this one close to the vest here. My bigger play will probably come near the close tomorrow. Post earnings, Apple has seen a relatively flat week through four of the last six reports, while posting a higher into the weekly close during the other two times. I will likely look to sell some out-of-the-money puts spreads and play some upside ratio call spreads.
As for earnings, I am looking at buying 1x Oct. 31 $99 puts/100 call straddles and pairing that with some front-week ratio straddle trades that are long 1x Oct. 24 $97 puts/$102 calls straddles and short 2x Oct. 24 $95 puts/$104 calls for $4.20 or less. My maximum value is likely around $6.50, with about $2.50 being my minimum value expectation, if Apple doesn't move. I'm really targeting a move in the 3.55%-to-4% range.
McDonald's has not seen very big moves around earnings to the upside, although it has bled red a few times. For the better part of two years, we've seen reactions of less than 3% on the day of earnings, and only once had it finish the week with a greater-than 3% move from the pre-earnings price. There are some concerns with McDonald's going into the number, so perhaps there will be a little more volatility.
I'm not willing to play that right now. Instead, I'd rather use a 1x2 ratio call spread on the upside, long the weekly $92 call and short 2x $93 calls for about a flat open. My breakeven is $94 and any move between 1.35% and 3.5% will be profitable. Anything under there and I breakeven. I will be using unbalanced butterflies for the put play going long 1x October 24 $90 puts, short 3x October 24 $88 puts and long 2x October 24 $96 puts for under $0.20 or better.
As far as KO goes, I am looking at selling 1% out-of-the-money puts or put spreads to buy call spreads that have a long leg at the money, and a short-leg 2% out-of-the-money right before the close tomorrow. The stock has a history of trading down about 0.45% to up 2.8% by Friday, with five of the least seven times trading higher. Three of those times, the move higher was by greater than 1.3%. I am not doing anything into the report on that or CMG though, at the moment.
I will be looking to put the other trades in motion in the final hour of trading, but I have not placed them as of now.
At the time of publication, Collins has no positions in any securities mentioned.