This episode of Options Playbook is built around two live trades going into two different, genuinely uncertain catalysts: Costco’s earnings report the next evening, and a fresh read on oil after a geopolitically-driven pullback. Brian Overby uses both to demonstrate defined-risk structures that aim to profit whether the underlying moves modestly in either direction, rather than requiring a confident directional call. On Costco, trading around $895 to $897 and down a few dollars on the day, Overby frames his stance as neutral to slightly bearish heading into earnings, citing the stock’s rich 48-times trailing earnings valuation, a soft consumer backdrop, and a recent AAII sentiment survey reading multi-year highs in bearishness even as the broader market keeps grinding to new highs. Rather than a plain short call spread, he builds what he calls a skip-strike butterfly — buying the 930 call, selling two of the 935 calls, skipping the 940 strike, and buying the 945 call, all in the same Friday expiration just two days out. The genuinely clever part of the structure, which Overby explains carefully for viewers unfamiliar with it, is that it can be entered for a net credit (around 32 to 50 cents in this case) and still have theoretical room to be closed for an even larger credit later if the stock drifts up slowly into the short strikes as expiration approaches — effectively getting paid on both the entry and, potentially, the exit. He builds and compares two versions of the trade in real time: a 10-point-wide version with the higher potential payout (up to $1,000 max) but slower time decay because the short strikes sit close together, and a tighter 5-point version with less margin requirement and a smaller max payout but faster decay on the short options since they’re positioned in a “sweeter spot” for time decay to work in his favor. He ultimately settles on the wider version as the official trade for the show, walking through the logic that a wider skip strike captures more of the accelerating decay that happens on options positioned further from the money as expiration nears. The second half of the episode shifts to oil, where Overby shares a trade he actually placed the prior day in his own account: getting long crude via USO after a pullback tied to renewed but inconclusive talks between the US and Iran. Rather than paying up for expensive at-the-money calls — implied volatility on USO is running around 52 percent — he builds an open-wing butterfly, buying the 147 call, selling two of the 160 calls, and buying a further 166 call, all roughly 23 days out to October 16th, for a net debit of $345. He’s candid about the emotional mechanics of that trade too, admitting the order sat unfilled most of the day and only executed minutes before the close, which he says is common with more complex multi-leg structures since market makers tend to work harder to balance their books right before the bell rather than mid-session. Overby closes with a genuinely useful, risk-focused wrap-up for both trades: on Costco, he warns viewers explicitly about the danger of a gap-open earnings reaction landing right at the short strike, and recommends exiting immediately rather than hoping a small loss recovers, since the position needs a full two standard deviation move to reach maximum loss. On oil, he reiterates that the trade is a genuine directional bet that oil grinds higher over the next several weeks, contingent on nothing more concrete emerging from the Iran talks, and that he’d abandon the thesis quickly if that changed. The episode wraps by previewing the return to Fundamental Friday’s ongoing options-as-protection theme and a follow-up next Monday on how both the Costco and oil trades resolved, with the standard reminder that nothing shown is individualized investment advice. |
