Here's a Juicy Earnings Season Play for You

As I'm sure all of you know, I spend a lot of time poring over data and charts every single day looking for opportunities.

Of course, with earnings season now hitting a full swing, the opportunities really start to pop. There are a few important things to remember though.

First, if you're trading options ahead of earnings announcements, you're paying for it. I did an interview with TD Ameritrade's television network on Monday during which we talked Amazon ahead of its results this week. Side note: I think that the stock is heading for a breakout of $1,700 on its way to $1,600, but that's another story.

When asked about playing options on Inc. (NASDAQ: AMZN), I had to point out that you're paying a premium for this big name due to the wide prices and earnings forecasts. In other words, you're paying extra for uncertainty; that's how the options world works.

With that said, let's move on to this morning's "find"...

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This Sector's Getting Its Strength Back

An increasing number of transportation stocks have been getting tagged "bullish" by my Best in Breed system. It's no secret that the sector's seeing some strength as the trade war appears to be moving to some sort of resolution.

My usual scans of upcoming earnings announcements focused immediately on Landstar System Inc. (NASDAQ: LSTR), a logistics company that provides services to the United States and Canada.

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The chart for Landstar shows a stock that's been locked in a tighter trading range with spates of volatility, usually associated with the trade war headlines or their earnings reports. Year to date, the stock is trading even with the S&P 500 with a return of 19%.

My Best in Breed system scores the stock a "Buy" with a target price of $130 based on the technical trends.

Here's Where Earnings Trade Potential Gets Interesting

Short interest on Landstar has been swelling over the last three months, which means that there are a lot of traders betting against the firm showing a good number in its report tomorrow after the close.

Looking at the historical data, this is the highest short interest ratio on Landstar since July 2018, just before LSTR shares ran from $108 to $125 after an earnings report that beat expectations by only $0.03.

This caught my eye, as the stock's been bumping its head against overhead resistance on the chart at $115. A break above $115 will not only get traders interested in buying the shares, but will also force those shorting the stock ahead of earnings to jump into the market as buyers, helping to propel the shares even higher.

Put all of this together, and you've got the potential for a quick profit earnings trade on Landstar. For my money, the November $115 calls are the more aggressive trade to profit from this breakout. They're trading at about $3.60 per contract this afternoon.

According to the charts below, a break above $120 should be your sign to take profits, and a break below $112 should be your signal to cut your losses and move on to the next opportunity.

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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