By: Steve Smith
Last week during my live event, I discussed the Earnings360 Service and its unique approach to profiting from earnings reports.
I showed an example of a Pre-Earnings Premium Expansion (PEPE) trade in Morgan Stanley (MS). Friday, the trade was closed for a modest 12% gain during the four-day holding period. Not a huge win, but it provided a real-time illustration of how PEPE trades get established and the conservative way they harness consistent profits without holding through the risk of the actual earnings release.
Unfortunately, the recording was unavailable until the next day; so unless you attended the event you missed it.
Today, I’m doing something special for OptionSensei readers and share with an Earnings360 trade being sent to members today. That’s right, below is the exact Alert which will be hitting Earnings360 members’ texts and emails today.
It’s a bullish trade in Delta (DAL), which reports tomorrow morning, meaning we must initiate the position prior to today’s close. This is a Post Earnings Premium Crush (PEPC) where we short for about 80%-90% gains during a one-day holding period. That’s right, the plan is to exit this trade by tomorrow.
Below, you can see how the Alerts provide all the pertinent information. My conclusion spells out the strategy I’m employing, providing the exact entry and exit prices.
Reports: 10.13 B.O.
Implied Volatility: 47%
Expected Move 3.67% or $1.55
Strategy: Bull Vertical Call Spread
Entry: Debit $1.40 (do not go above $1.55)
Exit Target: Net Credit < $1.75
The airline industry has struggled since Covid arrived some 19 months ago. Delta was not immune to these obstacles. But, they’re seemingly faring better than the competition.
- It has one of the strongest balance sheets and only carries an additional $2 billion in debt from the $9 billion pre-pandemic.
- DAL hasn’t experienced many of the supply and labor issues that continue to face other airlines. Its mandate for workers went smoothly and consumers now rank it in the top three for customer service.
- Analysts’ estimates have been dropping since September with the delta variant emergence, which has slowed travel. Delta itself reduced revenue forecasts for next quarter but says it already sees ticket sales rebounding; affirming it will fully recover by Q2 2022. As international flights ramp up, Delta, which gets 20% of revenue and 3% of profits from the transatlantic, will benefit.
- The stock’s down some 6% from the September high and is now at support around the $24-$3 level providing a good entry point.
Reduced or lowered expectations combined with a constructive technical setup makes using a vertical spread, which is partially in-the-money (it has intrinsic value) looks like an attractive risk/reward setup.
Buy to open 2 contracts DAL OCT (10/15) 42 Calls
-Sell to open 2 contracts DAL Oct (10/15) 45 Calls
For a Net Debit of $1.40 (+/-0.15)