Good day Insiders,
American Express is reporting earning pre-market open tomorrow and given that Friday is a holiday, we are going to take advantage of the spiked implied volatility levels. At the time of this update, implied volatility is at a 58% which gives us an expected move on the stock of +/-$3.50. American Express (AXP) is trading at 111.50 price level, which takes us up to 115 and down to 108. Let’s construct our trade accordingly.
When first writing this update, I was tempted to just place one butterfly and let it be as I a have a suspicion that the stock could indeed just sit. That being said, we are going to place the buying of a butterfly, the buying of a call spread and the selling of a put spread.
Risk & Reward
Our trade will use a total of $5,900 in margin with our breakevens at 109.50 and 114.60. In the event, there is no movement in the stock we have $370 of risk. For those position sizing, adjusting the butterfly as well as the put spread will reduce the risk on the downside, just keep in mind the cost on the trade if the stock doesn’t move will also be subject to change.