Making Money with Better Trades

 Making Money with Better Trades

Earnings season has returned, and ALCOA (AA) is the weather bell ringing. The unofficial signal that the earnings cycle has begun is AA reporting first, since it is the first major component of the DOW to do so. Earnings are always coming in, and even if the numbers may seem small at times, there are always corporations reporting. Nevertheless, the next two weeks will witness a surge in daily reports, reaching 3-400 per day, before experiencing a steep decline. Not every interesting company releases its financials at this time. Midway through September, brokers caused a stir in the markets, and RIMM has a history of causing trading world shocks like last Monday. However, during the following three weeks, you should expect to hear reports from most of the firms you're familiar with.

While businesses stand to gain by disclosing solid information while all eyes are on them, the earnings cycle might turn against them if they are one of 300 firms scheduled to report that day. A handful of well-known corporations can temporarily shift market sentiment, while others, regardless of their revenues, will be carried along by the current. On a poor day, it's hard to report good news.

A few suggestions for market players during earnings season;

Get the date of your company's report first. Despite appearances, this is far from simple. Various reporting sites may provide you with various dates. Organizations change their timetables and websites could or might not be updated. Getting in touch with the firm's investor relations department is the way to go for confirmation. You can find Dedicated Trader's phone number in the Company Profile section. The most up-to-current information on the earnings report date may usually be obtained from the person who is required by law to provide it. Please inquire properly as to when the quarterly earnings will be released; you may need to go through one or two people to receive the data. My research led me to focus on GE for this piece. Dedicated Trader's receptionist directed me to Investor Relations at 800 786 2543 when I phoned 203 373 2211. The pleasant young man needed to confirm with a supervisor that October 25th is indeed the date. Knowing this, I could either prepare a plan to profit on GE's results or make sure I wouldn't be sitting (unaware) in an option position on the day they were announced.

Secondly, traders place a premium on the time of day. What time of day would the data be released? The young man was unable to answer me. It is always after the market closing for GE, according to another pleasant man who confirmed it to me when I called another number (800 242 0134). A company's release policy is usually something like this, however it isn't always guaranteed. Accounting issues have been plaguing some businesses as of late, which has slowed down reporting times. You can accurately position earnings plays with the release timing. It is possible to construct plays the day prior to a company's after-market release that are sensitive to the day's moves as they approach the close. If you've made a decision the day before, you can still feel the anxiousness (good or bad) while you observe the price movement before to market open. This is because after market trading, the scales can tip, but your decision had to be made then.

Thirdly, gameplay or non-play. Learning and practicing are vital if you lack experience playing earnings. Certain earnings plays have a good chance of succeeding. It is not wise to guess. There are a lot of cases where the report's release caused the exact reverse of what was anticipated. Never risk money you can't afford to lose by taking a one-sided bet, whether you're bullish or bearish, especially when earnings are announced after the market has closed. That is all it is: an educated estimate. Sitting out earnings plays and playing the reaction is a smart move for most traders. Playing the earnings with non-funded positions is another way to practice. Mock trading accounts, which are available on many platforms, allow users to see all aspects of a trade without really funding the account. The practice accounts are very useful resources.

Fourthly, the past. The stock's past performance can be quite instructive. Historical earnings patterns are present in many stocks. It is typical to sprint up to the podium just before the announcement. Be mindful of any gaps, whether they are big or small. Planning for contingencies, setting realistic goals and striking pricing, etc., is made easier by inconsistency or weak reactions, etc. This should be considered, however it is not guaranteed.

Option pricing-the fifth topic. One major indicator is the cost of choices. A large time premium, caused by high volatility, is typically drastically decreased following the release of earnings. This means that even if the stock goes in the direction of the Long position (which includes owning a Call or Put), the disappointment could be substantial. As the time premium declines, the inherent value might be eroded. Consider large discrepancies between the actual time value and the fair value as a red flag. If you're an expert at judging time premiums, a fair or somewhat inflated one can be just right for long positions.

Sixth - Monthly time marker. When considering when the options will expire, the release date is also important. You should know exactly how long you intend to remain in a transaction before selecting an expiration month for your option strategy. Buying a Call or Put with only a week to expiration can be OK if you're simply going to hold onto the deal for a day or two. If you had more time, the time premium would have prevented you from making a play, but now you have less time, so you can.

Section Seven: Approaches. Taking a one-sided Long Call or Put is the most risky but potentially lucrative earnings bet. Once again, you should only play with extremely disposable income because it is a game of chance. Combination plays like a strangle or straddle are commonly employed. A secondary play opportunity may also arise as a result of the response to the release. Competence in unwinding and countermoves can yield substantial profits—sometimes even tripling or quadrupling the initial gains from a large gap opening—and, with the right reaction, can transform a poor trade into a good one. These are potent instruments for a trading environment that may be both dynamic and quite unpredictable. Be advised that historically and in response to changes in option prices will typically dictate the strategy and strike prices to be used. Finally, the trading distance between the strike prices and the stock is a determinant. Strategy changes when you're halfway between two strikes as opposed to when you're sitting near one.


Since options were somewhat more expensive than calls, this indicated that there was a slight downside price bias. As the next price targets (support and resistance) for an up or down Gap, the $80 puts and $90 calls were selected as the Long Strangle. In total, the two positions cost $3.80 ($1.50 + $2.30). With prices kept modest and the cost of both "Legs" below the time value, the risk was relatively neutral, as the At the Money (time value) cost was $4.00.

Opening at $102.19 the following morning, RIMM added $16 to its value. The calls are sold at $13.30 at the first indication of a retracement. Contrary to the expected response to a bloated pre-announcement price, the time value was much inflated at the opening, which made for an intriguing observation. After deducting the $3.80 trading fee, the total profit from selling $90 calls is $10.50, as the puts were worthless. We would have seen different outcomes if RIMM hadn't gone to such extreme lengths. Since a move to $90 or $80 was likely, the risk was acceptable, and it would have been nearly break even.

I apologize if this newsletter seems lacking in detail; after all, it could be a book with all the information needed, couldn't it? Despite that, there is a lot of useful information here. Those who wish to play earnings or avoid being caught off guard by them will still find a wealth of useful information. Would you be interested in attending the Traders Forge two-day training to improve your trading abilities? Then, if you're looking for options-specific training, there's the Advanced Trader Forge (ATF). You should attend the ATF after the Forge since it covers every possible scenario, including earnings plays, and goes into detail on strategy and option selection.

Thus, enjoy earnings season, but exercise caution. Do not be scared to play earnings, but know your skill level before putting money into trades. When you practice trading in real time with the market, you don't need to risk much money, but you won't learn as quickly either. The results are long-lasting with sufficient practice! Therefore, you need to train properly and practice perfectly.

How about we go to the free online stores together? Traders Forge is where I hone the FIVE trading abilities. So that you can maximize your time at the Traders Forge, I instruct you in their use. Wishing you a speedy reunion.

Using Better Trades, Ryan

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