It’s amazing what can happen in just a few weeks.
For the two months ending in July, the market climbed 12% — one of its best starts to summer on record. During that time, the news was largely focused on how cyclicals, financials, and tech stocks were all leading the market to new year-to-date highs…
…and then that all came to a crashing halt about two weeks ago.
I know it might be hard to see, but for the past four quarters, traders have driven up the price of ORCL around 5 points BEFORE earnings are even announced. What happens after earnings is interesting as well. Even though Oracle has reported better-than-expected earnings in each of the past four quarters, the price action afterward was a toss up — sometimes it moved higher, sometimes lower.
So where is the consistency with this stock? Well, when it comes to patterns, the consistency is before earnings. If the average move a week prior to earnings was around 5 points, this represents a stock move of 6% give or take. What I mean is that the stock buyer had an average 6% profit buying the stock a week before earnings and selling it the day of earnings, making sure they were out of the stock prior to the report.
Not a bad profit in a short time, but you still had to carry the stock for a week or so. Fortunately, there’s an alternative strategy we can use instead of position trading the stock.
The below chart shows the implied volatility for ORCL options. Same time frame, same earnings… but look at the swings of options premium in volatility!
Buying call options a week or so prior to earnings and selling right before the report looks like the right way to trade this pattern.
So if we had done that over the past four earnings cycles, how would buying the short-term near-the-money call options have fared?
Pretty well! ORCL is FOUR for FOUR when it comes to buying call options and selling them a week later. Just look at the returns on the far right of the table above — the most recent pattern saw a 378% rise in the June 109 Calls, starting at $2.08 and ending at $9.95. Impressive!
So with Oracle, the idea would be to either buy the stock or near money options a week before the upcoming earnings report (next is scheduled for Sept 11). And due to the toss-up nature of the post-earnings price action, we obviously want to close this trade out — win, lose, or draw — before the earnings report.
So what else is on my watchlist for the rest of summer?
Above is a list of my top bullish earnings picks heading into September. This list includes Lowe’s (LOW), which has a 100% accuracy over the past year and an average ROI on the options near 120%. Zscaler (ZS), Marvell (MRVL), and Salesforce (CRM) round out the top five, though they only have a 3/4 win rate over the year.
Remember, a plan is always better than none at all, even when it comes to earnings.
Wondering what to do about bearish patterns?
I recommend checking out today’s interview with my most successful student. He’s a former golf pro turned millionaire trader with an unmatched track record. In the past three years, he beat the best and the biggest traders on Wall Street 6X… 8X… up to 15X… even in the worst market in 15 years.
He joined me in the studio today to reveal his secret method for beating every trader in the world by a mile, and how anyone can copy his simple method.
Frankly, I was blown away. Click here to see exactly how he does it!
To your continued success,
America’s #1 Pattern Trader