LULU announces earnings on 9/10 before market open, so look to set up your earnings play prior to the 9/9 NY close to take advantage of the volatility crush the underlying's options will experience post-earnings.
Traditionally, I take a nondirectional bias with earnings plays since I do not know how the announcement will turn out and do not know what the market reaction to it will be. Consequently, I generally opt for a nondirectional iron condor or short strangle or, in the alternative, an iron butterly or short straddle in the event I cannot get enough "juice" out of an IC or short strangle to make the trade worthwhile. Look to take off IC's/short strangles in their entirety at 50% max profit and iron butterflies and short straddles at 25% max.
Because the Sep 11th weekly expiry would provide me with too little time to manage the trade post-earnings, I would probably opt for the Sep 18th expiry to allow time to roll for duration and credit if a side is breached.
EXAMPLES:
A Sep 18th 56.5/75 short strangle: 74% POP; 1.19 credit; undefined BPE.
A Sep 18th 53.5/56.5/75/78 IC: 71% POP; .64 credit; 2.36 BPE
A Sep 18th 65.5/65.5 short straddle: 54% POP; 6.80 credit; undefined BPE.
A Sep 18th 53.5/65/65/78 Iron Butterfly: 50% POP; 6.26 credit; 6.74 BPE
Notes: I would note that the break-evens for the short straddle and iron butterfly are tighter than those of the short strangle and IC. Although the max profits of the short straddle and IB are attactive, you'll also notice that the POP%-age is much lower than that for the IC and short strangle. Generally, where a short strangle or IC gives me enough juice, those are the setups I go with. The max profit for the IC here isn't fantastic, especially if you look to take it off at 50% max profit, so my preferred setup in this case would be to go with the short strangle, assuming that I want to devote the buying power to the trade.
Traditionally, I take a nondirectional bias with earnings plays since I do not know how the announcement will turn out and do not know what the market reaction to it will be. Consequently, I generally opt for a nondirectional iron condor or short strangle or, in the alternative, an iron butterly or short straddle in the event I cannot get enough "juice" out of an IC or short strangle to make the trade worthwhile. Look to take off IC's/short strangles in their entirety at 50% max profit and iron butterflies and short straddles at 25% max.
Because the Sep 11th weekly expiry would provide me with too little time to manage the trade post-earnings, I would probably opt for the Sep 18th expiry to allow time to roll for duration and credit if a side is breached.
EXAMPLES:
A Sep 18th 56.5/75 short strangle: 74% POP; 1.19 credit; undefined BPE.
A Sep 18th 53.5/56.5/75/78 IC: 71% POP; .64 credit; 2.36 BPE
A Sep 18th 65.5/65.5 short straddle: 54% POP; 6.80 credit; undefined BPE.
A Sep 18th 53.5/65/65/78 Iron Butterfly: 50% POP; 6.26 credit; 6.74 BPE
Notes: I would note that the break-evens for the short straddle and iron butterfly are tighter than those of the short strangle and IC. Although the max profits of the short straddle and IB are attactive, you'll also notice that the POP%-age is much lower than that for the IC and short strangle. Generally, where a short strangle or IC gives me enough juice, those are the setups I go with. The max profit for the IC here isn't fantastic, especially if you look to take it off at 50% max profit, so my preferred setup in this case would be to go with the short strangle, assuming that I want to devote the buying power to the trade.