NetApp Earnings Are On Tap

NTAP earnings are “on tap” this afternoon and we have identified a possible fantastic volatility play.

The chart sure looks bullish but you never know when it comes to an earnings report.  That being said, we are buying two calendar spreads – a put spread and a call spread. This is known as a “strangle swap.”  The strategy behind this type of option spread is to take advantage of selling extremely expensive implied volatility this week (high premium) and hedging the sale by purchasing further out options which are trading at much lower implied volatilities.

We actually added a bit of twist on this signal as we purchased a lower strike call then we sold, turning this into both a directional and a volatility play.  As you can see from this risk graph, we could profit nicely if the stock moves up and we have some decent “protection” on a downward move.