Posted in
Education
By: Tom Gentile
on January 27th, 2023
Earlier in the week I provided some education regarding how to assess a possible price move on a stock based on the At the Money (ATM) options prices for a stock. Let’s pop in now two days later and after the stock reported earnings and see what we can glean.
January 25, 2023, we looked at Intel Corporation (NASDAQ: INTC).
INTC was due to report earnings Thursday, January 26 After Market Close (AMC).
Before we state what the earnings results were remember we talked about an option strategy to consider based on the fact we didn’t know which way the stock would trade after the earnings announcement, higher or lower.
We looked at a Straddle option trade based on our thinking we didn’t know which way it would move , but with a straddle we didn’t care so long as the stock MOVED.
We looked at a straddle. This is where one would consider buying to open an ATM call and ATM put for the same expiration date.
W=It was taught that the combined cost or price of the straddle for the ATM strikes with same expiry could be an indicator of how much the options market makers believe the stock could move.
February 17, 2023. Options at the $29.50 strike for the call and the put showed a combined cost of $2.95.
An indication based on that pricing is INTC could move $2.95 or 2.95-points.
Take a look at the chart and you will note INTC closed on the 26th at 30.09.
After the earnings came out and on the open today the 27th INTC opened at 27.07.
Uncanny how close that differential and price movement was almost to the penny accurate to that expected 2.95… the differential on the open was 3.02.
Its possible the straddle was priced at $2.43 based on the intrinsic value of the $29.50 Put alone as the stock at 27.07 on the option is/was 2.43-points In the Money (ITM).
Take into account the time value left on the option even with IV coming out of the pricing due to the announcement having been announced and one might have been at least break even on the straddle early on in the day.
The ideal situation would be for INTC to have gapped deeper in the money on either the call or put option side to not only cover the cost but have profits on top of that, It did not happen right away, but the options expire February 17 so it may get profitable by then.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
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