Until about two years ago.
In the past, earnings season was for speculators, day traders . . . aggressive investors seeking a home-run trade.
As we all know, home runs don’t occur often. In fact, the average season witnesses just 3% to 4% of all at-bats going over the fence. In the past, the percentage of hitting it big with an earnings season trade was about the same percentage.
So why would I ever want to place a trade with those types of odds? It made no sense.
But the game has changed . . . drastically.
Now we have the ability to place earnings trades in specific stocks with an 80% probability of success.
More importantly, earnings season trades are not affected by overall direction of the market. So, we have the ability to make a nice return even if the market is headed south.
As we all know, the latter part of 2018 was incredibly challenging as most investors saw a drawdown of roughly 20% . . . yet we made 70.9% during the last quarter of 2018. That’s right, 70.9%, while the market moved lower almost 20%.
What about a bullish market? How did the strategy perform?
We have made 79 trades in total since Oct. 26, 2017. Go here to see my complete track record.
Only 17 of those trades were losers. Our win ratio was 78.5%. Our total cumulative gains . . . 620.4%.
Needless to say, I have been more than ecstatic about the gains and the overall success of the strategy.
But how does it work?
Let’s use one of our trades from last earnings season . . . Walmart (NYSE: WMT).
Walmart reported earnings on Nov. 14, 2019.
As you can see in the chart below, the stock was trading for $119.5 prior to the announcement.
Now, it is important to recognize that Walmart is no different than any other stock prior to earnings.
And what does Walmart stock have in common with all other stocks around earnings?
Individual investors, hedge funds and institutional investors have no idea where a stock is headed after earnings are announced.
And they don’t want to get out of their positions, so they protect their positions with options – typically buying puts as a form of insurance. However, lots of calls are also purchased as well.
The increase in demand for these options increases the prices of the options for the buyers. Simple economics, right? An increase in demand equals an increase in prices. The prices of options are no different.
And this is where we take advantage of this quarterly anomaly.
With prices at short-term highs we want to be the sellers of those options . . . not the buyer.
Because immediately after earnings are announced, the prices of those options decline significantly. Click here to see how much you can make in these overnight trades.
The market also gives us a few additional clues. It tells us what the anticipated move is going to be after earnings are announced . . . and we can use this to our advantage.
Here was the expected move for Walmart.
The expected move (highlighted in the salmon colored vertical bar below) is from roughly $115 to just about $124 for a range of approximately $9.
Knowing the expected move gives us a huge advantage and is one of the key factors why we have been so successful since we initiated our strategy.
For this trade we created a margin of safety with a probability of success over 83% . . . that’s right, 83%. WMT stayed within our range immediately after earnings were announced and as a result, we were able to lock-in over 13%, in one day.
Again, we’ve done this 79 times since Oct. 26, 2017, for total gains of 620.4%.
Learn how to use this strategy to make huge gains . . . Click here to sign up for my FREE masterclass.