Years ago, I never thought it made sense to trade earnings. It was a mostly a foreign concept; due to numerous limitations, trading earnings announcements just didn’t make sense from an efficiency standpoint.
Add 52 weekly expiration cycles and a variety of highly liquid blue-chip stocks and the clarity of a once-unknown calculation . . . and we now have the opportunity to trade earnings announcements in an efficient and informed manner.
The unknown calculation?
What is the expected move? How does it change the game?
First of all, the expected move is the price movement the market expects during a given expiration cycle. And now, we have tools that allow us to see, in real-time, the expected move for any given underlying stock around an earnings announcement.
Take, for instance, Walt Disney Co. (NYSE: DIS). The company reported earnings on May 5, during the last earnings season.
Below is the options chain for Disney, at the time I placed the trade. Notice the vertical orange bar. The orange bar signifies the expected move for Disney headed into earnings.
We should view the orange bar or expected move as our profit zone.
I say profit zone because prior to earnings we wrap our earnings season strategy around the expected move. We do so because all research states that 80% of all movement after earnings are announced fall within this profit zone.
This gives you an incredible edge if you play the strategy to trade earnings correctly, but you have to play it correctly to be successful. I will discuss, in detail, how the strategy works in our upcoming webinar.
Again, the edge that is inherent in the known expected move MUST be coupled with a sound options strategy and a mechanical approach to risk management.
When the three are combined, a powerful, profitable strategy exists. It is one that has seen our subscribers participate in a track record of 94 wins and 19 losses since we introduced the strategy 15 months ago. That’s a win ratio of 79.8%.
But what’s most important is our cumulative gains, because a good win ratio doesn’t always mean stellar results. Our earnings season strategy’s cumulative gains . . . 826.2%. That’s right, 826.2% over 94 total trades.
This is NOT a speculative strategy! The strategy doesn’t involve swinging for the fences or taking big risks.
The strategy is about consistency . . . hitting singles and doubles . . . not home runs. Home-run trades are for speculators and gamblers. We are not speculating with this strategy.
We are simply taking advantage of a few knowns the market offers around each and every earnings announcement by taking a disciplined and mechanical approach.
Best of all, our track record over the past 32 months backs it up!