American Express (AXP) Put Fly – Don’t Go Home Without Closing It

by CC January 20, 2017 1:25 pm • Trade Ideas

Yesterday we previewed American Express’ (AXP) Q4 results and detailed a fairly binary trade expiring today for those looking to fade recent strength. Here was the trade and rationale from yesterday:

For those looking to play for a pullback following earnings, similar to what we saw from the moneycenter banks following their rally into earnings, but without risking a ton of elevated premium is a put fly that starts in the money:

AXP (77.30) Buy the Jan 77.5/75/72.5 put fly for .60
  • Buy 1 Jan 77.5 put for 1.65
  • Sell 2 Jan 75 puts at .60 (1.20 total)
  • Buy 1 Jan 75 put for .15

AXP is down a bit on the report:

The credit card issuer posted fourth-quarter adjusted earnings per share of 91 cents on revenue of $8.02 billion. Analysts projected American Express to report earnings of 98 cents a share on $7.95 billion in revenue, according to Thomson Reuters consensus estimates.

American Express said its net income fell 8 percent year over year to $825 million.

With the stock 76.15 this trade is worth slightly more than a double at around 1.30. It’s essentially -100 deltas as we head into the close, so any movements below or above is profits and loss 1 to 1 with the stock. Doubling your money on a binary event is a good thing, it could have gone the other way as well. But by starting in the money with the put fly the trade had a better probability than an out of the money trade. It can be closed for a profit now or into the close, and should be or else it is short stock on Monday without defined risk. For those looking to continue bearish exposure the trade could be rolled lower and out to February, with the 75/72.5/70 put fly about .35 here. That targets the area near the 50 day moving average and books profits from the original trade for a free look to make up to 2.15 more on a continued decline.