Robinhood Markets (HOOD) is preparing for its earnings report scheduled for Wednesday after the market close, and the options market is reflecting a significant anticipation of a 9.6% price movement in either direction. This week, the implied volatility of Robinhood’s options is notably high at approximately 116%, compared to its usual volatility of around 60%.
To capitalize on this heightened volatility, traders are considering selling cash-secured puts. This strategy involves selling a put option while reserving enough capital to purchase the underlying stock if needed. The goal here is either for the option to expire worthless—allowing the trader to keep the premium—or to be assigned the stock at a lower price than the current market value.
For instance, a trader might sell an August 1 put option with a strike price of $100, potentially earning around $300 in premium per contract. With a delta of 34, there is an estimated 66% probability that the option will expire worthless, which means the stock needs to remain above $100 at expiration for the strategy to be successful and yield a 3% return in less than a week.
However, sellers must be aware that they take on the obligation to purchase 100 shares of Robinhood stock at the strike price if the buyer exercises the option. The break-even point in this case would be $97, which is 9% below Monday’s closing price. Should the stock price dip below $100 and the put option gets assigned, the trader could then consider selling covered calls on the acquired stock, which could provide additional income.
According to recent evaluations, Robinhood stock is performing well, ranking first in the Finance-Investment Banking/Brokers group and achieving an impressive Composite Rating of 99 from Investor’s Business Daily. This suggests strong market positioning and growth potential, although it’s crucial to acknowledge that options trading carries inherent risks and investors should be prepared for the possibility of substantial losses.
Gavin McMaster, a professional in the field with a master’s degree in applied finance, emphasizes that patience and strategic planning are essential for successful trading. Investors are reminded to conduct their own research and consult a financial advisor before making investment choices.
Traders can find an opportunity in Robinhood’s earnings announcement by strategically utilizing options, potentially offering either immediate income or a chance to acquire shares at a reduced price.