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Tags: Options Trading

Why Earnings Season Is the Most Wonderful Time of the Year for Traders Like Us

By Tom Gentile, America's No. 1 Pattern Trader, Money Morning • @powerproftrades • July 20, 2015

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Tom GentileTom Gentile

If you've traded for more than a few months, you've seen how earnings season can really move share prices - in both directions.

If you hold, say, a blue chip and it hits on earnings, you can book some nice single- or double-digit gains. Or, if there's a miss, you might take a loss.

In fact, earnings season trading is one of the most volatile strategies you can use. It's not for the faint-hearted.

But I'm going to show you a simple trade that you can use to leverage earnings news - good or bad - to make fast (and safe) triple-digit gains. And you can do it with some of the biggest, most liquid stocks on Wall Street.

Now is the perfect time to do it. My "money calendar" is flush with opportunities coming up this trading week ending July 24.

So, let's "scout" my earnings chart to see exactly where our next winning trade is...

The Most Profitable Time of the Year

For the past 25 years, as an author, radio and TV personality, and co-founder of one of the biggest financial education companies in the world, I've been in the trenches.

I spend earnings season "deep in the data," including data that virtually no one else has, like how earnings affect share prices before and after the report. And you can bet I spend entire weekends before earnings releases poring over the numbers.

That might sound boring, but the truth is, for traders like me, earnings season is like Christmas, the Fourth of July, and a birthday, all rolled into one. The excitement is palpable, because I know action and profits are just around the corner.

Let's have a look at some of that data I was talking about...

Options Trading

click to enlarge

This chart above is ranked by the estimated next days to earnings, taken on July 16, 2015.

The boxes that I have highlighted in red are the past reports when companies have either hit or beaten the estimate.  Data like that is easily obtainable with a bit of work.

But this next chart is where things get quite a bit more interesting...

Chipotle earnings

click to enlarge

This small list above is the top stocks that have the best closing average immediately following earnings.

For instance, Netflix Inc. (Nasdaq: NFLX), which has already reported, now averages a 17% change through its last five reports.

The next three are due up next week. Now, remember when I said it wasn't the earnings number so much as the reaction following the number?

Our Triple-Digit Earnings Season Trade

Have a look at what's happening with Chipotle Mexican Grill Inc. (NYSE: CMG).

Chipotle earnings

click to enlarge

This stock has had an average 9.16% move in the last four quarters, and the most recent three quarters has seen the stock drop after earnings.

That means the pattern is down, so I see a 9% target.

Here's how the pros trade on that information.

Now, as an options trader I like to buy low volatility and sell high volatility, but in this case it looks as if volatility will already be high before I put the trade on.

That's where the "loophole trade" comes in.

Here Are 10 “One-Click” Ways to Earn 10% or Better on Your Money Every Quarter

Appreciation is great, but it’s possible to get even more out of the shares you own. A lot more: you can easily beat inflation and collect regular income to spare. There are no complicated trades to put on, no high-level options clearances necessary. In fact, you can do this with a couple of mouse clicks – passive income redefined. Click here for the report…

Claim My Free Report

Tom GentileTom Gentile

About the Author

Browse Tom's articles |

Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.

… Read full bio

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Israel
Israel
8 years ago

Hey, I looked at the numbers on chipotle that you used, not only are they not the same, but your numbers don't match. Why is that?

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Tom Gentile
Tom Gentile
8 years ago
Reply to  Israel

Not sure what you mean? Can you give me an example? Tom

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