{"id":5058,"date":"2017-06-14T04:09:09","date_gmt":"2017-06-14T08:09:09","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=5058"},"modified":"2023-01-29T23:34:57","modified_gmt":"2023-01-30T04:34:57","slug":"options-strategy-earnings","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/","title":{"rendered":"A Simple Options Strategy For Massive Earnings Season Profits"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-5059\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/options-earnings-season.jpeg\" alt=\"trade options around earnings\" width=\"650\" height=\"436\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/options-earnings-season-110x74.jpeg 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/options-earnings-season-300x201.jpeg 300w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/#Momentum_stock_traders_face_the_same_dilemma_four_times_a_year\" >Momentum stock&nbsp;traders face the same dilemma four times a year:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/#Profit_Buffers_Matter\" >Profit Buffers Matter<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/#Simple_Options_Strategy_For_Earnings\" >Simple Options Strategy For&nbsp;Earnings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/#PayPal_Pays_Off\" >PayPal Pays Off<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/options-strategy-earnings\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Momentum_stock_traders_face_the_same_dilemma_four_times_a_year\"><\/span><strong>Momentum stock&nbsp;traders face the same dilemma four times a year:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Hold winning stocks through <a href=\"https:\/\/www.valueline.com\/Tools\/Educational_Articles\/Economy\/Earnings_Season.aspx#.WUC9kWjyuHs\" target=\"_blank\" rel=\"noopener noreferrer\">earnings season<\/a>&nbsp;OR&nbsp;close positions ahead of quarterly earnings reports.<\/p>\n<p>Selling a winning stock to lock in gains ahead of a company&#8217;s earnings report is obviously the safest bet.<\/p>\n<p>However, holding through earnings reports is often necessary to &#8220;catch the gaps&#8221; and yield big winners &#8212; think 50% to 100% or more.<\/p>\n<p>Ideally, you need an earnings trading strategy that gives you the best of both worlds; you need <em>options<\/em>.<\/p>\n<p>Continue reading to find out about a simple options strategy that limits&nbsp;your risk <em>and<\/em> allows for unlimited&nbsp;gains around earnings season.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Profit_Buffers_Matter\"><\/span><strong>Profit Buffers Matter<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The current amount of unrealized gain is one key factor&nbsp;that should determine if you hold a winning stock through earnings.<\/p>\n<p>If you are already sitting on a bullish stock with a 30 to 50% gain from your entry point, the decision to hold through earnings&nbsp;isn&#8217;t that tough.<\/p>\n<p>But&nbsp;what if you&#8217;re stalking a stock that is ready to break out, but it&#8217;s scheduled to report earnings within the next few weeks?<\/p>\n<p>It&#8217;s a challenging dilemma.<\/p>\n<p>Building a position in the stock <em>before<\/em>&nbsp;its obvious breakout point is tricky because there is no guarantee the stock will gap higher after&nbsp;earnings.<\/p>\n\n\n<p><iframe loading=\"lazy\" width=\"580\" height=\"680\" src=\"https:\/\/4966a6ff.sibforms.com\/serve\/MUIFAOyl4S5Qdajs7q3LemJKudDbMHB24p2SAorKuWWuauy3e1eFPtLgTh5BoPCh3XzIz3rZE_YyIqvc9IEl_xMkRg3MTlG0Zn5eqY3J2eKMjOE-jPuS43ZXewKssUaGt1kllR56wV2u1lBXoYfKSzEgeeTjLyjdSao87VmqsbDtgcy4jNwHMSzf0Rl346rIoBjtZwf-DX0V6tbn\" frameborder=\"0\" scrolling=\"auto\" allowfullscreen style=\"display: block;margin-left: auto;margin-right: auto;max-width: 100%;\"><\/iframe><\/p>\n\n\n<p>And if the stock remains in its base, you&nbsp;could be stuck with a position that has little to no profit buffer heading into its earnings report.<\/p>\n<p>On the other hand, you can miss out on massive post-earnings gaps if you wait for the stock to report earnings before buying it.<\/p>\n<p>Any way you cut it, trading around earnings season is always a bit of a gamble.<\/p>\n<p>But there&#8217;s an easy option strategy you can use that is ideal for this type of situation.<\/p>\n<p>Here&#8217;s how it works&#8230;<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Simple_Options_Strategy_For_Earnings\"><\/span><strong>Simple Options Strategy For&nbsp;Earnings<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>At <a href=\"https:\/\/morpheustrading.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Morpheus Trading<\/a>,&nbsp;we need a&nbsp;<span style=\"color: #000000;\"><strong>10% minimum profit buffer<\/strong>&nbsp;to hold an individual stock through its earnings report&nbsp;(20% is even better).<\/span><\/p>\n<p><span style=\"color: #000000;\">This being the case, how can we build a position in a stock that is scheduled to report earnings in a few weeks,&nbsp;while keeping risk in line?<\/span><\/p>\n<p><span style=\"color: #000000;\">The answer&nbsp;is to <strong>buy&nbsp;&#8220;near the money&#8221; call options that are one to six months out<\/strong>&nbsp;(<\/span>depending on expectations).<\/p>\n<p>These&nbsp;<a href=\"https:\/\/www.investopedia.com\/terms\/n\/near-the-money.asp\" target=\"_blank\" rel=\"noopener noreferrer\">near the money<\/a>&nbsp;call options are&nbsp;reasonably priced because we buy most breakout trade setups&nbsp;within the base &#8212; <em>before<\/em> the stock actually breaks out of its range.<\/p>\n\n\n<p><iframe loading=\"lazy\" width=\"580\" height=\"680\" src=\"https:\/\/4966a6ff.sibforms.com\/serve\/MUIFAOyl4S5Qdajs7q3LemJKudDbMHB24p2SAorKuWWuauy3e1eFPtLgTh5BoPCh3XzIz3rZE_YyIqvc9IEl_xMkRg3MTlG0Zn5eqY3J2eKMjOE-jPuS43ZXewKssUaGt1kllR56wV2u1lBXoYfKSzEgeeTjLyjdSao87VmqsbDtgcy4jNwHMSzf0Rl346rIoBjtZwf-DX0V6tbn\" frameborder=\"0\" scrolling=\"auto\" allowfullscreen style=\"display: block;margin-left: auto;margin-right: auto;max-width: 100%;\"><\/iframe><\/p>\n\n\n<p>If we buy a call for $2 to $3, there are no surprises; we know exactly how much we are risking heading into an earnings report.<\/p>\n<p>To show you how it works, let&#8217;s walk through&nbsp;an option trade we recently discussed in&nbsp;<strong><em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\">The Wagner Daily<\/a><\/em><\/strong>&nbsp;and<em>&nbsp;<\/em>real-time trading room on April 19 and 20.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"PayPal_Pays_Off\"><\/span><img loading=\"lazy\" decoding=\"async\" class=\"alignleft wp-image-4690\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2016\/09\/paypal-logo.png\" alt=\"paypal-pypl\" width=\"200\" height=\"200\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/09\/paypal-logo-110x110.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/09\/paypal-logo-120x120.png 120w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/09\/paypal-logo-144x144.png 144w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/09\/paypal-logo-50x50.png 50w\" sizes=\"auto, (max-width: 200px) 100vw, 200px\" \/><strong>PayPal Pays Off<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In late April, PayPal ($PYPL) was consolidating in a tight and narrow&nbsp;range above support of its rising 50-day moving average (just&nbsp;5% below its all-time high).<\/p>\n<p>Tight price action on declining volume within the range was a bullish sign, so we knew the&nbsp;move into the 50-day moving average&nbsp;(April 17 to 21) could be bought.<\/p>\n<p>But&nbsp;with earnings in the way on April 26, we would be forced to sell $PYPL <em>if&nbsp;<\/em>it failed to move higher right away &#8212; remember the 10% minimum profit buffer requirement.<\/p>\n<p>This is where the easy option strategy comes into play.<\/p>\n<p>Rather than buying PayPal stock, we mentioned the idea of buying a $45 call option with July 21, 2017 expiration.<\/p>\n<p>The call option was trading around $1.50 when we first alerted subscribers in the <a href=\"https:\/\/www.morpheustrading.com\/blog\/real-time-trading-room\/\" target=\"_blank\" rel=\"noopener noreferrer\">Realtime Trading Room<\/a>&nbsp;on April 19 (it was also highlighted in the April 20 newsletter).<\/p>\n<p>With the $45 call, we knew our maximum risk of holding through earnings was limited to the $1.50 paid for the $PYPL call.<\/p>\n<p>Take a look at what happened next:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2016\/170612PYPL.png\" alt=\"$PYPL OPTION AND PRICE CHART\" title=\"\"><\/p>\n<p>As you can see, PayPal broke out above its base&nbsp;<em>and followed-through <\/em>just&nbsp;a few days before its April 26 earnings release.<\/p>\n<p>Then, fueled by a <a href=\"https:\/\/www.nasdaq.com\/earnings\/report\/pypl\" target=\"_blank\" rel=\"noopener noreferrer\">9% positive earnings surprise<\/a>, the stock gapped up and zoomed sharply higher over the next six weeks.<\/p>\n<p>$PYPL stock rallied from around $45 to $55 &#8212; roughly a 22% gain.<\/p>\n<p>The $45 call option responded by rocketing from&nbsp;$1.50 to a peak of more than $10 on June 9.<\/p>\n<p>It has since pulled back to the $7.50 area, but the call option is still <strong>up 400% since our April 19 trade alert.<\/strong><\/p>\n<p>Subscribers still holding the winning option contract can maximize profits by trailing a stop below the recent &#8220;swing low&#8221; support.<\/p>\n<p>However, be aware of time decay as the July 21 expiration date approaches.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A 400% gain on a call option is obviously sweet &#8212; but even better is that our <strong>risk was limited to just $1.50 per contract<\/strong>, even if&nbsp;PayPal would have cliff dived after earnings.<\/p>\n<p>To be clear, we do <em>not<\/em> use options with every stock trade; we still swing trade individual stocks, just as we have done since 2002.<\/p>\n<p>Nevertheless, quarterly earnings season provides the perfect opportunity to &#8220;up your game&#8221; with a simple and effective options trading strategy.<\/p>\n<p><em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Subscribe now<\/strong><\/a>&nbsp;to The Wagner Daily and be&nbsp;instantly alerted to our best option trades in earnings season (and much more).<\/em><\/p>\n\n<center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\" type=\"text\/javascript\"><\/script><!-- Footer of content --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 300px; height: 250px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"7002222565\"><\/ins><script type=\"text\/javascript\">\/\/ <![CDATA[ (adsbygoogle = window.adsbygoogle || []).push({}); \/\/ ]]><\/script><\/center>","protected":false},"excerpt":{"rendered":"<p>Momentum stock&nbsp;traders face the same dilemma four times a year: Hold winning stocks through earnings season&nbsp;OR&nbsp;close positions ahead of quarterly earnings reports. Selling a winning stock to lock in gains ahead of a company&#8217;s earnings report is obviously the safest bet. However, holding through earnings reports is often necessary to &#8220;catch the gaps&#8221; and yield [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-5058","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5058","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=5058"}],"version-history":[{"count":4,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5058\/revisions"}],"predecessor-version":[{"id":15806,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5058\/revisions\/15806"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=5058"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=5058"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=5058"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}