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Hello — JD here with your Rational Trader market update.
In today’s video, I walk you through two trades I took today, both of which are designed to take advantage of a very specific edge that shows up around earnings time.
Let’s get into it.
Earnings = Opportunity for Mean Reversion
When a stock reports earnings, the options market usually expects a big move. That expectation shows up in the form of elevated implied volatility — meaning the cost of options is higher because traders are pricing in a potential surprise.
That makes it a great time to be a premium seller, especially if you believe in mean reversion — the idea that even if stocks move temporarily, they tend to drift back toward a central value.
And that’s exactly the kind of setup I saw today — not once, but twice.
Trade #1: Apple (AAPL) Bull Put Spread
Apple reports earnings after the bell.
Right now, the stock is hovering around $215. I don’t know what earnings will bring — but I don’t need to know. This trade isn’t about predicting the news. It’s about pricing.
Because implied volatility is so inflated, I was able to sell a put spread well outside the expected move range and still collect a decent premium.
Here’s what I did:
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- Sold the 200 put
- Bought the 190 put
- Both expiring August 1 (tomorrow)
This is a classic bull put spread — I’m taking the other side of the panic. Unless Apple completely falls apart on earnings, it should stay above 200, and I keep the premium.
And if I’m wrong? My risk is defined.
Trade #2: Roku (ROKU) Bear Call Spread
Roku’s in a similar situation — earnings after the bell, options are expensive, and the stock has run up sharply over the past few weeks.
In this case, I’m taking the opposite side of the trade: I’m bearish.
Here’s the setup:
- Sold the 105 call
- Bought the 115 call
- Also expiring August 1 (also tomorrow)
That’s a bear call spread — I’m betting Roku doesn’t blow the roof off. If it just stays put, or even drifts lower, I make money.
Again, this is a mean reversion setup. I’m not trying to outguess the market — I’m leaning on the fact that after a big move, and with options overpriced, prices tend to snap back or at least not explode further.
I’m Not Guessing — I’m Selling Rich Options
These trades aren’t magic. They’re just math.
When implied volatility is stretched, I want to be a seller. When the odds are skewed in my favor, I lean in. And when the risk is defined, I don’t have to be right every time to win.
These setups — one bullish, one bearish — both follow that same playbook. Fade the extremes. Let the odds work for you.
Talk soon,
JD
The Rational Trader
