This Options Trading Example Shows How You Can Earn 50% Every Quarter

You've mastered the basics of options trading. Now it's time to make some real money.

We've got an options trading example that's delivered 64% gains for Money Morning readers. And it only took three weeks.

This example is easy to copy and could deliver gains of 50% or more every time you do it.

Plus, you'll have an opportunity to do it four times year.

So if you start out with $1,000, you could turn it into $5,062.50 over the course of a year.

Do it again the following year, and you'd have $25,628.91.

This options trading strategy will put you on the fast track to building enormous wealth, quarter after quarter.

Here's how it works...

64% Gains in Three Weeks - and You Can Repeat It Again and Again

On April 18, 2018, Money Morning's options trading specialist, Tom Gentile, told readers they could grab a 50% gain by May 9 - just three weeks later.

It turns out, he was understating the profit potential of this trade.

Tom was talking about the consumer review company Yelp Inc. (NYSE: YELP). Heading into its earnings call on May 10, Yelp was coming off a series of earnings beats.

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In fact, Yelp's earnings per share in the previous quarter came in at $1.60, compared to a consensus estimate of just $0.05. That beat of 3,243.6% had gotten a lot of investors' attention. And Tom figured it was a good bet that Yelp stock would be on the move ahead of its next call.

This is exactly the kind of situation where an option trade is the perfect investment. An option contract gives you control over many more shares than if you owned the stock outright. So any movement in your favor is multiplied several times over.

That's exactly what happened with Yelp.

Between April 18 and May 9 - a day before Yelp's earnings announcement - the stock price rose from $44.83 to $47.92.

That's a 6.9% gain in just under three weeks.

From an investor's standpoint, that's not bad. But even if you sold your shares, that 6.9% might not be worth your time.

And if you held on to the stock, you'd only watch those gains erased as Yelp's fortunes faded over the next few months.

Those who went with Tom's option play, though, fared much better.

The short-term, at-the-money call option Tom recommended was selling for $3 per share on April 9. On May 9, that same option was trading at $4.92 per share.

That's a 64% gain. If you had put just $900 into that trade, you would have come out with $576 profit in less than three weeks. And that's from a share price movement of less than 7%.

Note that the success of this trade has nothing to do with how Yelp's earnings report actually turned out.

Instead, Tom was trading on the anticipation of the earnings report.

It's all based on Wall Street's tendency to "buy the rumor, sell the news." In order to get ahead of Wall Street, Tom tells us to buy before the rumor and sell before the news.

How to Profit from Earnings Season: Buy Before the Rumor, Sell Before the News

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The key to this trade is that Tom was in and out before the earnings report came out. He knew that Yelp's price had a history of moving in the week or two before earnings announcements. That's because stock prices tend to move based on Wall Street's expectations.

That is, traders buy the rumor. If they think the earnings report is going to be positive, they'll buy the stock in advance.

When the report finally does come out, it almost doesn't matter if it's good or bad. Sometimes a stock's share price will fall back down to earth even after a good earnings report. Traders have gotten over the anticipation, and the excitement around the stock dies down.

In other words, traders sell the news.

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Tom's strategy was to get in front of this trend. He wasn't interested in whether Yelp's report would live up to expectations. He only cared about what the market was anticipating.

By getting out a day before the earnings report came out, Tom took the guesswork out of the equation.

That's what made this trade so profitable. And it also makes it easy to copy.

When earnings season comes around, look for stocks that, like Yelp in early 2018, tend to move a lot in the week or two before their announcement.

And when you buy your option, set your exit point for the day before earnings are announced.

You might be tempted to hold onto an option longer if you think the report might go in your favor.

But remember, even if the report is positive, the share price still might move against you. Investors will very likely sell the news, even if it's good news.

So be sure to set your exit point and stick with it.

If you do, you could score 50% gains - or more - quarter after quarter. And watch the wealth pile up.

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