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Hey folks — JD here, back with your Rational Trader earnings recap and setup for today.
Yesterday, we hit two earnings setups that paid exactly the way we drew them up.
So today, I want to briefly walk through the results — and then show you the next opportunity I’m looking at in Vertiv Holdings (VRT).
Let’s jump in.
Spotify: Textbook Credit Spread Win
The first trade was Spotify (SPOT) — where we shorted the $830/$860 call spread ahead of earnings.
This was one of those cases where the options premium was just absurdly high. Spotify’s implied volatility was off the charts, and based on recent earnings history, the chance of a blowout move to the upside was minimal.
So we sold into the hype — and sure enough, Spotify came in light, the premium collapsed, and we kept the credit.
Simple. Clean. Boring.
But most importantly, profitable.
UnitedHealthcare: More Than Enough Movement
The second one was UnitedHealthcare (UNH) — and this one was the opposite structure.
We used a double debit spread (buying the $280 call and put, selling the $290 call and $270 put). That gave us a capped risk/reward box that paid off if UNH moved at least 3.5% post-earnings.
It moved more than 6% — so the box closed at max value. Another win.
This is one of the reasons I keep calling this the “cash machine.” It’s not flashy. But it works.
What I’m Watching Now: Vertiv Holdings (VRT)
Now we shift to Vertiv Holdings (VRT) — which reports earnings tomorrow morning.
The stock is currently trading at about $143.
That’s more than 2 standard deviations above its mean — and for anyone unfamiliar with that phrase, here’s the gist:
In a normal distribution (think of a standard bell curve), 95% of the time, price action stays within 2 standard deviations of the average. So when a stock breaks outside that range, it becomes statistically more likely to revert back inside it.
That’s what we call mean reversion, and it’s the engine behind many of these earnings trades.
The Setup: Selling Rich Calls
I’m looking to sell a bearish call spread on VRT:
- Sell the $160 call for around $1.40
- Buy the $165 call for around $0.95
- That brings in ~$0.45 in credit
If the stock doesn’t explode higher, you keep the premium. The long call at $165 protects you from any major upside surprise.
And if you’re more aggressive? You could step in closer to the money — sell the $143s, for example — but I like giving myself room.
The probabilities are better. And I sleep easier.
Stick with the Strategy
I’ll keep saying it: you don’t have to chase headlines to make money. You just need setups that give you structure, favorable pricing, and a reasonable thesis.
And when earnings season hands us stocks trading way outside their statistical norm? That’s when the cash machine starts humming.
See you tomorrow.
Talk soon,
JD
The Rational Trader
