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Equities

Foot Locker's High Implied Volatility Offers Lucrative Options Trading Opportunities

Leveraging Foot Locker's Expected 16% Post-Earnings Move with Strategic Options Trading

By Max Weldon

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3/4, 11:07 EST
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Key Takeaway

  • Foot Locker (FL) is anticipated to see a 16% stock price move post-earnings, highlighting its high implied volatility.
  • The retailer's stock has fluctuated significantly, offering lucrative options trading opportunities around earnings.
  • Strategies like long calendar spreads are recommended to exploit the expected "vol crush" for profit.

Implied Volatility and Options Trading

Implied volatility is a key concept in options trading, representing the estimated future volatility of an underlying asset. Options traders use this to determine the price of an option, with higher volatility leading to higher option prices. The decline in estimated volatility after an event, known as "vol suck" or "vol crush," can impact traders' profits. Foot Locker (FL) is expected to have a significant 16% move following its earnings release, making it an attractive option for trading strategies.

Foot Locker's Volatile History

Foot Locker has experienced significant volatility in its stock price, rallying over 250% from pandemic lows to $65/share in May 2021, then falling by 45%. Despite operational challenges compared to supplier Nike, Foot Locker has shown resilience in its stock price. The upcoming earnings release presents an opportunity for traders to capitalize on potential price movements.

Trading Strategies for Foot Locker

One strategy to consider is a long "calendar spread," involving purchasing longer-dated options while selling nearer-dated options to offset costs. For example, buying June $30 puts and selling March 8th weekly $31 puts could be a bearish play on Foot Locker's performance. Alternatively, an upside call calendar could be used for a more optimistic approach. These strategies aim to leverage the expected volatility post-earnings to generate profits.