Why is JD betting against the smartest people on Wall Street?
Hello everybody — JD here with your Rational Trader market analysis daily.
Today’s update is all about one of my favorite setups: what I call The Mean Reversion Cash Machine.
I’m using it again this week to take advantage of earnings-season volatility — and more specifically, the juicy option premiums that come with it.
Let’s look at a few opportunities that caught my eye today…
Marriott: A Classic Mean Reversion Play
Marriott (MAR) is trading two standard deviations below the mean ahead of its earnings. That’s exactly the kind of setup I look for.
I’m selling a put credit spread using Friday expiration:
- Sell the 242.50 put
- Buy the 235 put
That gives me a net credit of $0.45 — and the stock would have to fall 5.8% for that first strike to even get touched.
Now, could that happen?
Sure. But Marriott isn’t especially volatile, even during earnings season.
Statistically speaking, this is the kind of trade where I feel like I’m getting paid to wait for the stock to not fall apart.
Palantir: Don’t Guess — Just Collect Premium
Now Palantir (PLTR) is the opposite… One of those stocks that swings wildly on earnings — sometimes 15–20% in a day.
So instead of guessing direction, I’m setting up what I call a long/short debit spread combo — a kind of neutral straddle-strangle hybrid:
- Buy the 160 call
- Sell the 170 call
- Buy the 160 put
- Sell the 150 put
All expiring this Friday
Total cost is about $8.70 total to place this trade.
If PLTR moves just 6.25% in either direction, this setup pays off. And implied volatility is projecting closer to 16%, so we’re well within the expected range.
This is a smart way to let volatility work for you without trying to be a fortune teller.
Caterpillar: A “Boring” Stock with Reliable Premium
Caterpillar (CAT) is trading near two standard deviations as well, but unlike Palantir, it’s not likely to make any wild swings.
So I’m going back to a classic here — a call credit spread:
- Sell the 465 call
- Buy the 475 call
That gave me about a $0.50 net credit, with CAT trading around $432 at the time.
For this trade to lose, the stock would have to rally 7.5%, which just isn’t common for CAT.
It’s a boring, predictable stock. And that’s exactly what makes it profitable.
Hims & Hers: Too Risky for Me
Finally, Hims & Hers (HIMS) also reports this week — but I’m staying far away.
It’s too volatile. I was looking at a tempting call credit spread, but the stock would need to move over 20% to make the trade risky — and HIMSS has moved 40% on earnings before.
Could I make money? Sure. But this one fails the rational test, so I’ll take a pass.
That’s a Wrap…
I’m sticking with Marriott, Caterpillar, and Palantir — all strong setups, each with a clear edge.
I’ll be back tomorrow to update these and see how they performed.
Until then — trade smart.
Talk soon,
JD
The Rational Trader
