This Brand New Stock-Picking Tool is Unlike ANYTHING You’ve Seen Before!
Good afternoon everybody. JD here with your Rational Trader market analysis daily.
Today’s episode is all about the trade we talked about yesterday:
Constellation Brands (STZ) — and how it played out exactly the way I hoped it would.
Mean Reversion in Action
STZ reported earnings after the close today, and the reaction? Flat. Maybe down 1% in after-hours at most.
That’s what makes this setup so beautiful. The stock closed right on its mean — a classic example of mean reversion. You can’t draw it up better.
The Put Side: Safe
If you followed along, I had suggested selling the $150 puts — which was 7.5% below the closing price at the time.
Throughout the day today and into the after hours earnings announcement, STZ was still sitting safely above that level.
The put is likely to expire worthless. That’s the goal.
The Call Side: Also Safe
But here’s the kicker: Because of where STZ is trading there was also an opportunity to sell calls.
The $180 calls — which are 7.5% above today’s close — are also safe and look. Even after earnings, they were nowhere near being in play.
That means we had the potential for a strangle setup: sell both the call and the put, both outside two standard deviations, and let time and the odds do the work.
Why It Worked: The Stats Backed It Up
If we look at the last 20 earnings reports for STZ:
- The stock has never moved more than +7.5% the day after earnings.
- On the downside, it only dropped more than -7.5% twice.
- That’s a 95%+ probability edge.
Median post-earnings moves?
- -3% on the downside
- +1.8% on the upside
So these strikes weren’t aggressive. They were mathematically correct.
Like Playing the Odds in Poker
This is just like poker — it’s all about pot odds.
I’m not trying to guess direction. I’m not swinging for home runs.
I’m taking advantage and selling inflated premiums outside of statistically unlikely zones — and letting the math work in my favor.
Final Thoughts: Just the Beginning
STZ was just the start. Earnings season is about to pick up steam in the next 2–3 weeks.
And this kind of setup is going to be everywhere. Ripe for the taking.
You better believe I’ll be there for it.
Part 3, followup on this trade is here
Talk soon,
JD
The Rational Trader
