NaughtyPines

CREE EARNINGS -- A NONSTANDARD "EXPECTED MOVE" SETUP

NASDAQ:CREE   CREE INC
CREE             announces earnings on 1/19 after market close, so look to put on any premium selling play before the session ends to take advantage of a post-earnings announcement volatility contraction.

Ordinarily, when a play won't yield at least a 1.00 credit for a 1 standard deviation short strangle or iron condor setup, I just pass it over. It is, after all, earnings season, and there's going to be plenty to play. Nevertheless, I looked at various setups with CREE             as possible alternatives to my standard setups one of which involves narrowing the width of a short strangle to the range of the expected move for the expiration. Naturally, this decreases the probability of profit percentage (while increasing the potential max profit), but this is what I came up with as a potential play:

Jan 29th 22/26 short strangle
Probability of Profit %: 61%
Max Profit: $105/contract
Buying Power Effect: ~$297
Break Evens: 20.95/27.05

When I do these somewhat "goofy" setups that are tighter than usual, I ordinarily look at the chart to see if those ranges (the strike prices and the break evens) make any objective sense in light of recent historical price action. On the chart shown here, I've marked the strike prices in red and the break evens in green. You can kind of see that the ranges do, in fact, make a little sense, at least with the price action that has existed since July or so.

If anything, though, these ranges suggest that I could possibly skew the setup a touch to the bullish side by a strike or two, something I'll play on market open ... .
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