Hey there, Power Profit Traders!
Earnings and volatility have been the theme of the week – on Wall Street, in my LIVE trading sessions, and in your Power Profit Trades newsletters.
We’ve been discussing ways to capitalize on that earnings buzz and volatility using options, as I do in my Operation Surge Strike service…
And since Fridays are relatively quiet for me usually, I figured we’d take this time to review one of those lessons.
After all, while the peak of earnings season is behind us – just barely – we still have a ways to go. Considering that and the Fed/inflation noise we’re facing, I don’t expect volatility to go away anytime soon.
So, in order to survive the wild swings in this market, you MUST have a versatile trading toolbelt, so to speak.
The more strategies you become comfortable with, the more nimble – and profitable – you can be when things go nuts.
One of the many strategies we use in Surge Strike is what’s called a “straddle” – a two-legged options trade where you buy an at-the-money (ATM) put and call with the same strike and expiration date.
It sounds funky, I know, but it’s set up to profit no matter which way the stock swings, and it’s an excellent one to have in your back pocket when things are volatile… like right now.
We’ll review that page of the options playbook, a Super Bowl-sized lesson from Joe Burrow, and what my proprietary BRUTUS tool is saying could be an excellent stock to straddle next week.
Boring Works If It Gets You to the Super Bowl
To review, the straddle is a theoretically directionless play, in that as long as the stock makes a big enough move to the up- or downside, the options buyer can make money.
To open a long straddle, you would:
- Buy to open a call option (I prefer ATM)
- Buy to open a put option with the same strike and expiration
The combined cost of the options is the initial net debit, which represents the maximum risk.
You can make money on this trade two ways: if the stock swings so high that the value of the call exceeds the initial net debit; or if the stock falls so low that the value of the put exceeds the initial net debit.
Plus, if you buy the straddle when implied volatility (IV) is relatively low, and ride IV higher – like into an earnings report – that’s even better!
Who doesn’t like to buy low and sell high?!
And that’s exactly how we do it in Operation Surge Strike– I aim to profit on the stock’s direction AND an IV spike.
It’s a strategy that’s worked time and again for us, thanks to my proprietary BRUTUS technology, which helps us nail the timing of these trades.
BRUTUS hunts down what I call “trigger events,” even telling me when to enter and exit a position.
And it recently indicated that Kroger (KR) could be a potential straddle candidate next week.
For those of you in the Piggly Wiggly and Ralph’s areas of the country, Kroger is a Cincinnati-based grocery chain – and they’re letting you know it ahead of the Bengals-Rams Super Bowl this weekend.
That’s not even a subtweet, that’s a threat
Despite the white-hot Twitter feuds – and… this may surprise you, so brace yourselves – the grocery sector isn’t the most glamorous OR volatile.
Tell me you were sitting down for that.
I’m kidding, of course – but know this much: KR may be boring, but boring has WORKED over the past year… if you’re a pre-earnings straddle buyer OR the Cincinnati Bengals.
Caption: Boring works if it gets you to the Bowl
Source: Yahoo! Sports
Earnings are expected from Kroger in early March, and IV has shot up into the last three earnings reports. I can confidently say that history is on the side of this trade.
Surge Strike’s BRUTUS is pointing to a potential two-week trade on KR – and I’ll go over the timing, charts, and details in our next Power Profits LIVE session at 11:30 a.m. ET on Monday.
Be ready – and have a great weekend (WHO DEY!)!
Tom Gentile
America’s #1 Pattern Trader
