“It’s that time of year, where the world falls in love. Every stock you see seems to… GAP BIG!”
Yes, it’s Christmas in July with earnings season now upon us. Hands down, earnings is the best catalyst of consistent and tradeable patterns. If you know how to trade them, you can drop some Christmas cheer right in your trading account any time of the year.
Earnings are concentrated in January and every three months after. Do the math and you’ll discover that July is one of the months with a concentration of earnings announcements.
And this July features a few especially juicy ones.
In fact, today I’m going to give you a sneak peek at a couple of the earnings trades I’m featuring in Operation Surge Strike this month…and show you exactly when and how to profit.
Here’s what to do…
How We Look “Between The Gaps” to Find Precise Earnings Profits
Every listed company in the stock market must announce earnings every 3 months. With the analyst community looking at the financial data of companies with a magnifying glass, the slightest over or under performance can lead to gaps in the stock price immediately after the announcement.
Stocks gap at earnings all the time. Here are a few from last earnings period:
Notice how these stocks consistently gap at earnings (green “E” triangles). History tends to repeat, so with a historical earnings gap record, it’s likely that these stocks will gap at their next earnings announcement.
The icing on the cake is that these consistent gaps create an even more reliable pattern. One component of an option’s value is Implied Volatility (IV). IV is the expense of options and as earnings approaches, the option IV of gapping stocks rises… and sometimes big. This means that options bought prior to earnings will be more expensive at earnings.
Check out the IV charts for the gapping stocks above:
As you can see, the IV rises into earnings each time. Also, notice how the IV tanks immediately after earnings. This is important because if you hold options over the earnings announcement you’ll get hammered when the options get suddenly WAY cheaper.
So, with these two consistent patterns we can come up with option trades that profit based on stock movement AND IV rush… a one-two punch to profits!
There are various ways to do this, but my favorite and the one that generates the biggest profits is this:
- Find stocks that move consistently up or down into earnings.
- Buy a call or put to match the direction.
- Get out BEFORE the earnings announcement (to avoid IV crush).
Here’s an example of a trade on CSX (NYSE: CSX):
6 days before earnings on January 10, 2020, here was the stock and IV chart.
Notice two things:
- CSX gaps at earnings (green “E” triangles).
- The IV rushes into earnings (and tanks right after).
We bought a CSX Jan 17, 2020 $74 Call option for $1.30.
6 days later and BEFORE the earnings announcement, here’s what the chart looked like:
As you can see, both the stock AND the IV went up.
On the exit date, the CSX Jan 17, 2020 $74 Call option we bought for $1.30 was worth a whopping $3.45, a 165% profit in 6 days.
Two “Surge Strike” Earnings Setups You Can Use to Profit This July
Finding these setups is easy with scanners and, what do you know, I have them. My scanner finds these patterns and determines the optimal day to enter to maximize profits.
Here are a few that I’m looking at right now:
Zoetis (NYSE: ZTS)
- 221.62% average ROI over past 4 earnings period.
- Earnings: Aug 5, 2021 BMO
- Enter: 7-22-21
- Exit: 8-4-21
- Buy At-The-Money (ATM) Call / Aug 20, 2021 Expiration
Calix (NASD: CALX)
- 60.31% average ROI over past 4 earnings period.
- Earnings: July 26, 2021 AMC
- Enter: 7-19-21
- Exit: 7-26-21
- Buy At-The-Money (ATM) Call / Aug 20, 2021 Expiration
*ATM = strike closest to stock price.
Interested in more of these trades?
I publish trades like these every single month in Operation Surge Strike.
You see, approximately $970 billion is changing hands every day, thanks to the extra volume caused by waves of speculative cash being dumped into the market.
The amateur traders who are just throwing darts in the dark set us up to take advantage of this incredible rise in volume – with the help of my signature algorithms, of course.
And there’s no better time to see them in action than earnings season.
I’m revealing the next round of trades I have my eye on, right here.
Talk soon,
Tom Gentile
