How to trade earnings the right way! // Stock earnings, trading earnings reports with options


Trade earnings the right way! // Trading earnings, trading earnings reports with options, stock earnings, how to trade earnings, how to trade earnings reports, stock market tips strategies basics, stock market investing, stock market trading market for beginners options trading strategies david moadel welcome to looking at the markets with David Modell I want to talk about earnings plays with stocks and options do i recommend trying to predict what’s going to happen with an earnings reports well let’s take a look one thing sometimes people do is they read articles or they listen to so called experts or analysts and well let’s take a look at netflix this guy predicted that he recommended short netflix ahead of trump all right and and this was made before an earnings announcement by netflix and if you had followed his advice let’s see how you would have done well after earnings this is after hours right after the netflix earnings announcement let’s look at the news netflix netflix beats subscriber guidance paints wider margin targets and after hours it’s up over eight percent almost eleven dollars up after hours and so if you had listened to the analyst or the so-called experts you probably would not be very happy right now and so i do not recommend basing your decisions on so-called experts or analysts who try to predict what’s going to happen with earnings announcements I don’t think that’s a great way to try to base your decisions alright so how about looking at past earnings reports well let’s take a look at netflix again let’s see if we can look at this this column right here we can see the you know the next day after earnings we can see the percentage of change and we can try to predict whether you know it might have gone up or down and it’s about half and half half up and half down some big down days some big up days and some not so big up in down days it’s it’s kind of random really it and it’s not dominated by up days or down days and so you know i can’t really form any conclusion or make any prediction based on past earnings reports and i’ve looked at many other past earnings reports and and this this is from busy stock calm by the way where they show the past earnings reports and I’ve looked at many of them for many companies in many stocks and it’s oftentimes or usually like this where it’s just pretty random it’s not dominated by earnings beats or earnings mrs. and so I can’t really for many conclusions from that well how about you might say okay well you know what I’m not going to try to predict whether it’s going to go up or down after earnings what I’ll what I’ll do is I’ll just buy a straddle okay I’ll just buy and at the money call option and an at the money put option alright and that way I don’t have to I don’t have to predict the direction I just have to I I just need a really big move in a one way or the other up or down and I’ll make a nice profit well look how expensive this is right before earnings look how expensive the options are ace in a straddle would cost well the call would be over six dollars a share and be put would be over six dollars a share for a total of almost twelve dollars and fifty cents a share so you’d have to it would they would have to move more than that just to break even I’m sorry I would have to move that much just to break even and more than that to make a profit yeah almost twelve dollars and fifty cents a share and it so far it’s moved not even eleven dollars per share okay and that’s a sizable move so you know III don’t think that buying a since they’re so expensive since the options market inflates the prices right before earnings announcements I don’t think it’s a good risk/reward to buy a to buy a straddle right before earnings and you might be thinking that a strangle which would be an out of the money call and an out of the money put might cost less well yeah probably will but in most in many cases that record that would require the the price to move even more it would require an even greater move in the underlying stock and so your probability of success would be even less quite possibly alright and so what I what I don’t recommend is trying to predict beforehand instead what I do is I make my move after the earnings announcements okay for example if there’s a big earnings miss on a company that I like a lot and that is consistently profitable and it’s a company that’s well established and has been around a long time and I’m confident that it will recover then if there’s an earnings miss and the stock goes down to my target price that I’m willing to buy it at then I might buy the stock or I might buy a call or a call spread okay so i’m more into a post-earnings plays rather than pre earnings plays so oh and one more thing I just wanted to show another example this is from unitedhealth group and just to show how irrational earnings season is if you look at the news here unitedhealth groups earnings jump fifty-six percent in the fourth quarter you think that would be good news but let’s look at how the stock performed post earnings it’s down and if you look at the chart BAM straight down so you know good news can be interpreted by the markets as bad and vice versa it’s not rational I don’t think it’s predictable or tradable okay so that’s just something to think about all right so if you found this video helpful please give it a thumbs up on YouTube and leave comments and also please subscribe to my youtube channel so you can receive the latest updates on my financial educational videos and if you want some help with the stocks options or finance in general or if you want to put together a trading plan because you really should have one you can email me anytime at David Modell @ gmail.com thank you so much for watching and listening I appreciate it and I’ll talk to you soon

10 thoughts on “How to trade earnings the right way! // Stock earnings, trading earnings reports with options

  1. great video. True better to play the post earnings or just sit it out see where it all settles. Sometimes sites like Earnings whisper.com kinda give you better guage but still no one knows what's truly gonna happen or how a stock will react. Now if u know a particular stock very good example u been following it for more than a year u kinda get a feeling how it moves post earning then maybe u can play it

  2. Great video… Everyone talks about earnings reports as a catalyst. You explain well that it might not necessarily be the case every time. In he comments below, a comment made by "TRADE X" mentions junk dealer and you seem to agree. Is junk Dealer some sort of trading lingo like Junk bonds dealer or something? Let me know plese… Good Job David.

  3. Good job David one of the few out there who dont focus on bogus indicators and use facts. I subscribed.

    Please subscribe to my channel as well called WealthSmart, I'm trying to grow it and educate people on fundamentals as well as general personal finance tips!

    Thanks and keep it up!

  4. Thanks for the video. Are there earnings straddles where premiums are affordable? I know of someone whom claims they make great money earnings straddles. Perhaps /he/she not showing their loses?

  5. Hi David. Quick question, what about going long on a strangle weeks before earnings and buying these calls and puts with low IV (less than 30%)? Even if the stock stands still until the report comes out, if the IV gets higher because of earnings, wouldn’t that help the value on both options? Thank you!

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