Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
In a market like this one, that's going flat-out, it's not too hard to pick winners. I've heard people say you could probably throw darts at a list of companies and do OK... at least until the next correction, whenever that is.
But the serious profits go to folks that know the data and use it to trade stocks to juice those profits. It's super important to understand and trade the patterns - how stocks move - not just for a quarter or two, but for years. That's why I invented the Money Calendar, to get me all that information at a glance.
Knowing how those patterns work and how those stocks are likely to move becomes even more important during earnings season, and we're heading right into the thick of it. Trading on some of these stocks is going off the charts... But, unfortunately, a lot of those trades won't work out; I'll show you why in a second.
But there is a way to give your trades the best shot at success, especially during earnings. It's a "trick" the pros use. I'll walk you through it, then show you the stocks I'm looking at that could be big movers when they report.
Don't Make Traders' No. 1 Earnings Mistake
As you probably know, this is a special time of year right now - earnings season. That makes things a little different. Earnings reports are often tradeable "events" that can send stocks moving up or down more than usual.
A lot of folks think it's enough to just buy a call option a day or two before an earnings report and close out once the report's on the street. That's actually the No. 1 mistake I see made out there during earnings. A lot of time, even though the stock moves in your direction, those trades can lose money. That's because most of these traders are focused like lasers on predicting price - and they can be right - but the timing is off.
Get Tom's Trading E-Book
Tom Gentile details how to predict stock movement and set up to cash in big. Click below to get his e-book.
Get Tom's Trading E-Book
Tom Gentile details how to predict stock movement and set up to cash in big. Click below to get his e-book.
Take Netflix Inc. (NASDAQ: NFLX) - it's missed estimates a few times since summer 2020, and each time, unless they timed it perfectly, a lot of folks who bet directionally lost out, even though, not long after the earnings miss, the stock moves up again.
The smart way to play this is to get in and out before the earnings "main event" using implied volatility (IV) - something I've been talking about for years - which is way easier to successfully predict than directionality, especially if you've got lots of data.
I said a minute ago that the number of stocks is getting smaller, but the demand for those stocks - and the options you can trade on those stocks - is skyrocketing right now.
I talked about this last weekend.
Those huge, heartbeat-looking spikes you see are massive spikes in implied volatility - demand for options. When you get into a trade before those gigantic spikes start and get out right as they start to fall, you can pocket easy double- and even triple-digit profits.
Once you figure out which way you think the stock will go as the reports hit Wall Street (and the Internet), plan to buy an at-the-money (ATM) call or put seven days or so before the announcement. Make sure the option's expiration comes as soon as possible after the announcement. Hang tight, and then sell the option back to the market the hour before earnings are announced, whether that's at market close or market open (sell at close the day before).
Word to the wise: It's absolutely a good idea to confirm the company you're looking at is actually going to report on the day you pick. Sometimes that doesn't happen.
Here Are a Few Stocks to Watch
With all that said, let's look at a quick list of stocks that are scheduled to announce during the first week of May that I think could potentially make for profitable trades - a "watch list." I'm not necessarily recommending anyone trade these - I have to save my explicit recommendations and instructions for my subscribers - but I certainly think these will be in play shortly.
There's Estee Lauder Co. Inc. (NYSE: EL), which is a stock highly keyed into discretionary spending. With the economy heating up and the pandemic slowing down, I think this company could do well when it reports before the market opens on May 3.
The next day, after the market closes on May 4, Activision Blizzard Inc. (NASDAQ: ATVI) is scheduled to report. I mean, video games! What more can I say? This sector, which is always pretty popular, was on fire during the pandemic and shows no signs of slowing down.
And last but not least, Becton Dickinson & Co. (NYSE: BDX) reports during the pre-market hours on May 6. This big multinational operates out of New Jersey, and makes medical devices, instrument systems, and some other medical and scientific necessities. A company like this is a no-brainer during a pandemic; it's enjoyed solid growth for years, in fact. A lot of analysts think it will turn in a beat on May 6.
The markets have usually been a free-for-all during earnings season, but the past few earnings have been a little different. They've been even crazier...
That's because as many as 72 million new investors and traders have hit the markets, trading on apps with "zero commission" brokerages. A lot of them are young, and a lot of them seem like they're using that "throwing darts" strategy I mentioned. This new crowd is putting as much as $970 billion up for grabs every day the markets are open, and it seems like they don't much care what happens to it.
With all the patterns I crunch every day, it should come as no surprise that I've figured out these huge volume surges can potentially be massive profit opportunities. I've back-tested quite a few with my "brute force" BRUTUS algorithm and uncovered chances for 300% returns in three days... 650% in eight days... even 2,500% in 14 days during the backtesting period. You've got to see how this works.
Follow Money Morning on Facebook and Twitter.
About the Author
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.
