JD’s found a way to turn Wall Street’s overconfidence into cas
Hey everybody, JD here with your Rational Trader Market Analysis daily.
In today’s video, I did find some option action — some real juice in the option market — in Intuit (INTU). The company reports earnings after the market closes today, and the setup is straightforward.
Where the Stock Sits vs. “Two Sigma”
The stock is hovering right around the two-standard-deviation bands. Last week (August 11) it dipped below two standard deviations; today it’s now just above that lower band after snapping back.
Quick explainer if you’re newer here: “two standard deviations” (often called Two Sigma) is a statistical distance from a stock’s moving average price.
Because the average itself moves, the bands float — they expand and contract with price and volatility. That’s why you sometimes see a bulge or drift in those lines (watch today’s video to see what I mean). None of that is unusual, it’s just how the math works.
After earnings, these bands will likely recalculate and shift again as the new price action and volatility get baked in.
Volatility Is Elevated, Premiums Are “Juicy”
Implied volatility (the market’s forecast of how much a stock might move, reflected in option prices) is very large in INTU right now.
In plain English: option premiums are juicy. When I see that — and the chart shows a price oscillating around Two Sigma — I look for a clean, mean-reversion trade.
Mean reversion simply means betting a stretched price will drift back toward its recent average rather than keep stretching.
The Trade: A Defined-Risk Call Debit Spread
I’m keeping it simple: buy a call debit spread centered near the $697.50 strike, $25 wide on the call side.
- What that is: A debit call spread means I buy one call and sell another call at a higher strike to reduce cost.
- Why I like it: It limits risk to what I pay (the debit) and sets a clear, defined max profit (the width between strikes minus that debit).
Here’s the math I’m using today:
- Risk (net debit): about $10.90 per spread
- Max potential payout: $25.00 per spread (the width of the spread)
- What we need: Just about a 3.7% move higher post‑earnings for the spread to realize its full value
This is a quick, tactical shot at a mean reversion higher into and after the release — nothing more complicated than that.
Position Sizing: Keep It Small
You don’t need size here.
In fact, I recommend one contract for most accounts on a setup like this.
It’s a defined‑risk trade with a clear target, and there’s no reason to overdo it the day before expiration.
Timing and Expectation
INTU reports after the close tonight; these options expire Friday.
If the stock makes the expected drift, this should be a real clean, mean-reversion ringing of the cash machine.
If it doesn’t, risk is capped. We’ll take the data and move on.
On A Personal Note
That’s all I have for today, folks. I’ll be back with more Mean Reversion Cash Machine trades next week, assuming the option market cooperates.
On a personal note, I’m saying goodbye to my daughter — she’s heading off to Taiwan for nine months. You’ve seen me mention that in my FREE Telegram channel if you’re in there. And if you’re not, click here to join now.
Given the political tension between China and Taiwan, I’m a little nervous, but dad will be okay. I’m going to spend the rest of the afternoon with her and her sister — good family time before she leaves the nest.
Good luck with Intuit, and I’ll see you all next week.
Take care, everybody.
