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It's the start of earnings season, and you are ready for the magic.
Microsoft announces earnings today. And Amazon and Google both announce earnings tomorrow.
You have reviewed all the earnings forecasts and estimates, checked the history of positive and surprise earnings, and you are ready to win big.
You have all your charts at hand.
You have moved some money into your options trading account, and you are ready to go.
Everyone tells you that this is easy money, so long as you have the right technical approach to spot the likely winners and losers.
But this hasn't ever really worked for you in the past.
That's because all of your methods are wrong.
Fortunately, I've figured out a better way to trade earnings season.
In fact, I have two…
Even These Two Gambling Approaches Are Better Than Trading Earnings Season
Okay, I lied.
I'm not going to tell you how to trade earnings season.
I'm going to tell you why you shouldn't.
But let me first debunk the allure of trading options this earnings season by showing you two terrible alternative approaches that are nevertheless better.
Here's how to get started: Take all your charts, graphs, and tables, and throw them in the trash. Transfer the money out of your options account, and get ready to gamble it.
Now you're ready to try the two gambling approaches. Approach No. 1: Head to the nearest horse racing track. When you arrive, grab a nice cold beer and a racing form.
Divide your stake by the number of races, knowing that most tracks have either eight or 10 races a day. For our example, we will use 10 races, so divide by 10. If you had $25,000 earmarked for earnings season trading, your stake for the day would be $625, so that's $62.50 per race.
Pick a favorite and then add up the number of horses going off at over 15 to 1 odds in the race. Bet the winner to win and the others to show in equal amounts. The favorites will win about a third of the time, and if you hit a few of the long-shot show bets, you will go home a winner on the day.
If you don't feel like spending the day at the racetrack, then try Approach No. 2: Go to the nearest casino. When you arrive, walk straight to the baccarat tables.
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Bet the banker and only the banker, and play $10 a hand. When you win, let it ride until you win five in a row. The objective here is to play at least 200 hands. In 200 hands, there is something like a 95% probability of a six-hand winning streak. If you hit one and split the remaining hands 50-50 (the odds say it will be more like 48-52, but we are hoping for a little luck here), you go home a decent-sized winner.
Then, rinse and repeat…
Whichever of the two approaches you take, keep doing it every weekend until you have lost your stake or earnings season is over.
If you had a little bit of luck, you are somewhere around breakeven.
If you had a lot of success, you have more than you started with.
Worst case, you lost all of it.
Odds are you lost some of it. You may have lost 2.5% of your intended trading stake, which is a far more pleasing result than you would have likely experienced if you had attempted to trade the earnings season using options.
You have gotten your action fix for the quarter, had a lot more fun, and probably have more money left. Put whatever is left back in the bank until the next earnings season.
Here's Exactly Why You Shouldn't Trade This Earnings Season
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.