We are in the midst of one of the most important earnings seasons to date as the economy is starting to pick back up.
Companies’ reports are coming at a critical time, seeing as we’re still in the middle of the coronavirus pandemic that is heavily impacting revenue across the globe.
The pandemic left 147 million people unemployed, which ultimately resulted in $2.1 trillion in lost income. Yet, the Nasdaq just hit an all-time high of 11,069.
Bottom line: There will be volatility in the coming weeks – and where there’s volatility, there’s opportunity. There are tons of gains on the table for your taking.
Today, I’m going to show you a strategy that allows you to secure profits no matter what direction stocks move this earning season.
Here are the details on this lucrative play…
Use a Straddle Trade to Profit on These Six Pre-Earnings Stocks
Already, market bellwether stocks like Citigroup (NYSE: C), JP Morgan Chase (NYSE: JPM), and United Health Group (NYSE: UNH) have all announced higher- than-expected earnings reports.
Goldman Sachs (NYSE: GS) just announced earnings that were better than expected and gapped up.
But not all stocks are rising.
Delta Air Lines (NYSE: DAL) dropped after announcing earnings that were even less than an already lowered expectation.
Stocks within the same sectors are trading in different directions, which makes them hard to play – but with this strategy, you can profit whether the stock is going up or down.
You can’t do that just by purchasing the stocks straight up. That will only work if the stock rises – and it would have to rise a lot to see any kind of impressive profit.
But with options, you can profit in either direction.
- Call options profit if the underlying stock goes up with unlimited profit to upside. If the stock drops, the risk is limited to the cost.
- Put options profit if the underlying stock goes down with unlimited profit to the downside. If the stock goes up, the risk is limited to the cost of the option.
Put them both together in a single trade and you have something that makes money if the stock goes up or down, and you’re doing it with limited risk.
This strategy is called a straddle.
Here’s an example.
Back on May 13, 2020, I was looking at Expedia (NASDAQ: EXPE). It was seven days before earnings, and EXPE had a history of gapping at earnings.
The stock chart below illustrates EXPE over the prior two earnings periods.
Notice that EXPE gapped down on one earnings announcement and up the next. This is a stock with a repetitive history, and a move – either higher or lower – was likely in seven days on the next announcement.
And the big question to ask is: Which direction? No one knows for sure, but that’s not a problem. You can play both directions with a straddle.
In this case, we bought the EXPE June 26, 2020 $62 Call and the EXPE June 26, 2020 $62 Put for a total of $12.65, or $1,265 per contract. Note that the $1,265 debit is the maximum risk in the trade.
The magic of the trade is revealed in the risk graph below, which essentially translates stock price to profit or loss.
The stock chart on the left illustrates EXPE‘s volatility. The chart on the right, the risk graph, illustrates the combined effect of the call and the put together – which makes the straddle trade.
Notice that this straddle profits if the stock goes up or down. Given that the stock historically gaps at earnings in either direction, the probability of profit is high.
Here’s what happened…
When we opened the trade, EXPE was trading around $64.64. Then, before earnings, the stock gapped up to a high of $83.11 – providing a 48% profit in just seven days!
If you’re looking to place a straddle trade similar to this one, here are the rules:
- Find stocks that gap at earnings
- Buy an At-The-Money (ATM) Call and Put
- Use 45-60 day options
- Exit after the earnings announcement
And now for a little “Christmas in July” present – I have listed six different straddle setups that have profited 75-100% over the past four earnings periods when entering seven days before the stock’s earnings announcement.
All of these straddle opportunities have averaged at least 41.51% ROI!
Be sure to confirm the date that the company is reporting earnings before you enter these trades. There are several resources where you can find this information, like “earningswhispers.com” or the company’s investor relations page.
Don’t miss out on this lucrative way to profit on the earning’s volatility.
Now, many of these stocks are set to gap up big. And a straddle isn’t the only way to play them.
See, this system can do something that no one else – not even the computers on Wall Street – can do. It can spot when a stock is about to make an explosive move to the upside.
How does it do it? That’s the really amazing part. It uses a proprietary sequence-matching protocol that can spot hidden trading patterns. And by “hidden,” I mean they’re invisible to the human eye – and every other computerized trading platform on the planet.
I’ve been sending a select group of readers trade recommendations based on this system’s results for the past year and a half. And they’ve made profits upwards of 100%, 150%, even 200% as a result.
But I recently discovered that someone has been sharing this information… and the main reason this system works is because so few people know about it.
That’s why we have to close the doors to new readers on Sunday at midnight. This could very well be your final chance to join this group – and reap the benefits of this supercomputer’s powerful calculations.
To learn how you can join, click here.
Tom Gentile
