Options Playbook Ep. 456 — Exploring #COP
This episode of Options Guy TV picks up the thread on a ConocoPhillips trade that Brian Overby had built as a diagonal, selling a shorter-term call and buying a longer-term call spanning the earnings date, explicitly as a cheaper, more flexible alternative to a straight long call spread. He walks through the logic behind why this structure made sense in the first place, that the short-term option he sold would be pricing in less implied volatility than the longer-dated option he owned, and that as earnings approached, he expected that gap to widen further in his favor as volatility built into the back-month option ahead of the report.
With the short leg now expiring and ConocoPhillips trading modestly lower on the day due to weaker oil prices, Brian walks through the mechanics of turning this diagonal into a proper long call spread by selling a new, further out-of-the-money call against his existing long position. He’s transparent about a bit of hindsight regret here, noting that closing the expiring short leg on Friday rather than letting it ride into Monday would likely have gotten a better fill, but he uses the moment as a genuine teaching opportunity about the mechanics of rolling a position rather than glossing over the less-than-optimal timing. The resulting trade locks in additional credit, further lowering the cost basis on the long call heading into Thursday’s earnings report.
The episode’s second half pivots to Caterpillar, which Brian frames as an attractive bullish setup precisely because of how much it had already pulled back heading into its own earnings report. He draws a direct parallel to Apple’s pattern of selling off even after strong earnings, arguing that Caterpillar had already absorbed a comparable pullback before its report even happened, unlike Apple, which tends to sell off after a strong run rather than before. That distinction, pulling back ahead of earnings rather than into a fresh high, is central to his bullish thesis, and he builds a deliberately wider, more expensive open wing butterfly than usual to reflect Caterpillar’s larger dollar-denominated expected move, buying the 850 strike, selling two 880 strikes, and buying one 895 strike for a net debit of around $6.
Brian is unusually explicit in this episode about sizing and cost discipline, walking through why a $600 position on an expensive underlying like Caterpillar is a reasonable one-unit trade even though it costs meaningfully more than the same structure would on a cheaper stock. He connects this back to a broader theme that recurs across his shows, that the dollar cost of an options structure should scale with the underlying’s price and expected move rather than being judged in isolation, and that comparing a $1 Cisco butterfly to a $6 Caterpillar butterfly on cost alone misses the point if the risk-reward ratios are actually similar.
By the close of the episode, Brian has two live positions working into earnings, a ConocoPhillips long call spread built out of a diagonal roll, and a fresh, wider Caterpillar open wing butterfly betting on a bounce off recent weakness. Both trades reflect a consistent underlying philosophy across this run of shows, using defined-risk, multi-leg structures to speculate on earnings-driven volatility while keeping maximum loss capped and clearly known in advance, a theme that makes this episode a useful companion piece to the Caterpillar follow-up that airs the following week.
