Crush the Next Earnings Season - and Every One After - with This Simple Plan

Earnings season is wrapping up, and as usual, a lot of profits have been left on the table.

This should be the most profitable time of year. But so many traders miss the best opportunities.

That's why I trade earnings differently than everyone else.

I'm not an analyst. I don't give much thought to revenue and earnings per share (EPS). If you only focus on the top and bottom line, earnings can get really complicated, really quickly.

So I created my three-step earnings trading plan.

This plan simplifies the earnings process and still comes loaded with that same exciting profit potential that earnings brings.

For anyone who doesn't feel like they're making as much as they could from earnings, this plan will help you profit every single quarter, like clockwork.

Here's all you need to do...

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Simplify Earnings Straight Down to the Profits

Step No. 1: Look at the historical movement

"Historical movement" is pretty simple. All you're looking for is how many times a stock has moved up or down over the last eight quarters.

You can think of this in terms of sports betting.

Let's say there's a big game coming up and you know you want to put money on it. You start to dig into the numbers of the team's matchups over the years. You focus on wins versus losses and realize that Team A has won seven of the last 10 matchups. And suddenly, deciding which team to put your money on seems simple.

Determining a stock's historical movement is a lot like that. I'm looking for stocks that are consistently going up every quarter. If a stock has gone up seven times out of the last eight quarters, I'm interested.

Step No. 2: Check out the implied movement

If you've been in the trading game for a while, you probably know all about this step. But here's a refresher...

Implied movement is an indicator that's used to predict how much a stock price will increase or decrease due to an upcoming event - which in this situation would be earnings.

This number is based on implied volatility, and when paired with historical movement, it can give you a strong sense of where a stock or option could be headed next.

Step No. 3: Establish a measured move target

Once I have an idea of a stock's implied movement, I can establish a measured move target. This is the prediction of where the price of the stock could move.

I like to profit from earnings season by trading options - and this is an important part of ensuring I'm adding the right option to my lineup.

The way that this is done is by taking the price of the actual stock and then both subtracting and adding the implied movement. The two final numbers that you get are the two price points the market makers believe the stock could hit.

For example, let's say a stock is priced at $30 and the implied movement is $3. You would first subtract $3 from $30 and get $27. Then you would add them and get $33, so now $27 and $33 are your two targets.

Putting It All Together

So, imagine you're getting geared up to place your next earnings trade. You've got your eye on a stock you've been watching. The guys on the financial news networks all have different opinions of where it could head next.

But you know that none of that back and forth even matters, so you shut off the TV and get down to business.

First up, you check out the historical movement, and you see that the stock has rallied six times and sold off twice over the last eight quarters. What that tells you is that this stock has great historical movement. So you check off your first box.

Secondly, you dig into a stock's implied move. You find out that historically it moves 3% on average - another great sign.

Second box: checked.

Following this, you take a look at the stock's current price, which is $30. From here, you're easily able to calculate your measured move target. It gives you the two possible outcomes I showed you earlier - $27 or $33 - but since the stock has moved up consistently over the last eight quarters, you're going to trust that history will repeat itself.

Now, you could purchase the stock and settle for small return - or you could set yourself up for the possibility of unbelievable gains.

And it's all done with one thing: Options...

When it comes to earnings, my favorite trading strategy is a call butterfly spread.

This setup lends you limited risk, but allows you to pocket major gains.

It's done by purchasing four option contracts with the same expiration date, but three different strike prices: a higher strike price, an at-the-money strike price, and a lower strike price. And it makes for the perfect positioning for an earnings trade.

Thanks to my three-step plan, you know exactly what your move is... Buying the weekly $31-$33-$35 call butterfly.

This means that you would buy one $31 call, sell two of the $33 calls, and buy one $35 call. Now, your total comes out to $0.40 per contract. And as you might know with options, one option equates to 100 contracts, meaning you would pay an easy $40.

Easy, right? Now you can kick back your heels and watch the money come rolling in because all you need is for the stock to follow its historical pattern - which comes with an 80% chance.

If the stock moves up to $33 on expiration (just like the historical movement predicted), the spread would be worth $2, so you would make 400% profits. Much better than a normal stock investment return, huh?

And it really is that easy.

Bottom line, making money through earnings doesn't have to be complicated. And with this three-step plan, you're already on your way to cashing in on that next big earnings report.

But before you go, I've got yet another trading plan for you... my 1450 Club trading plan, that is.

You see, at The 1450 Club, we have a trading plan for any market. We talk about it daily. And we always stick to it regardless of what the market does. It's a trading plan that can allow us to make money in any market condition - whether it's a bull run or a volatile swing.

I'm not here to tell you it doesn't come with risk - any style of trading comes with risk - but our trading plan helps manage that risk. And it's not one-size-fits-all. Everyone is different.

In a market fueled by fear and uncertainty, it's important to be mindful of your risk, but that doesn't mean you have to press pause on building the future you deserve. And The 1450 Club can help you do just that. Just click here to find out more...

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