By: Tom Gentile
on February 1st, 2024
Originally published via our newsletter previously. Subscribe for early access!
A company beats its earnings per share (EPS) projections, but guide or state forward-looking earnings may come to light. The stock drops 1%.
Another company misses their earnings projections, yet they say they should meet expectations for the rest of the year and the stock pops 1.5%.
One company beats estimated and drops, and the other misses and pops! Does it make any sense? More than the current earnings result the market looks for what is to come. You can see trying to trade options around earnings and during earnings season can be a risky game.
One of my team members, Mike Wade, has taught what I call a Mastery Series called Earnings Mastery. There are more mastery courses besides just the one on earnings, but since we are in earnings season now, this is the one that comes immediately to mind.
I bring this up because I will be shortly releasing a means for everyone to have the opportunity to pick up my company’s most recently run Earnings Mastery or any or all of the most recently run Mastery Courses, and I call it Mastery on Demand. All the recordings of the most recently run Mastery Course recordings and access to the scans for those on a limited-time basis will soon be available.
Keep an eye out soon on how to get involved.
SPY – SPDR S&P 500 ETF Trust
GDP data shows the US economy grew at a rate of 3.3% in the fourth quarter, which was much stronger than the expectations for it to come in at 2%. which speaks to the resiliency of this market.
That, plus indications and some camps believing the Fed is battling inflation without taking us into a recession, is proving bullish for the markets.
The S&P 500, at the time of this writing, is looking like it will trade at an all-time high for the 5th consecutive trading day.
I am going to continue to ride the momentum and favor more bullish options strategies over bearish (though the contrarian in me is always on the lookout for bearish opportunities as well).
With the intraday price action closing lower than its open price the last couple of days, I do want to be mindful that a pullback could occur.
Tools and Observations
- IBM is up 15.9%
- URI is up 13% hitting 52- week highs.
- AAL is up almost 10.3%
- HUM is down 11.46%
- TSLA is trading down 12.14%
Whether you anticipated these results or not; whether or not you were on the right side of a directional options trade that you held over earnings or not, wouldn’t it be nice to have a bead on how much the stock price has the chance to move, whether it be higher or lower BEFORE the earnings announcement?
Well, my tools can help you do just that.
Bring up an options chain and look at what is considered the At-the-Money (ATM) strikes-priced options.
I consider the strike price closest to the stock price as the ATM option.
Look at both the ATM Call and the ATM Put.
Add the two together, and that, to me, is a bead on what the Market Makers see as the potential price move capable of the stock.
This is not me trying to guess or anticipate the direction of the stock. I am trying to pick if it will trade higher or lower.
Instead, I may consider a Straddle on the stock if I want to hold the trade through the earnings announcement.
With the straddle one has the opportunity to capitalize on the option trade should the stock make a move that amount or more in either direction.
I am looking at Intel Corporation (NASDAQ: INTC) before earnings are released tonight after the market closes.
The stock is trading at $49.62 so I will look at the $50 call and Put and add the current price on each to assess an anticipated price move once the numbers come out.
You can look at any expiration you want, but I am going to look at the next month out, third-Friday expiration, which is February 16th.
A combined / total of $5.02 (I used the mid-price for each.
This is not a guarantee the stock will move that much pr more, but it is a good place to start when anticipating a move.
Should a trade be opened on this it would cost $5.02 or $502 per contract.
To be profitable, the stock needs to pop or drop and move that amount or more. In the Money one, either the call side or the put side. If this price move does not happen right away, the anticipation that it will be as quickly as possible after the announcement.
— Tom Gentile
C1P: Chief 1-Percenter
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
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