LikeFolio Earnings Predictions via our famous Sunday Earnings Sheet are designed to give you a significant edge in your trading and investing. Here are a few examples of different approaches trading the information in the sheet:
Simple — buy or short sell the stock
The most obvious way to play earnings is to place a bet on the stock itself. Buy the stock if you’re bullish, short sell the stock if you’re bearish. Then close the position at some point after earnings, depending on your analysis.
Selling OTM puts and calls
Let’s say you are slightly bearish on a company going into earnings, but more bearish on the company as a whole,
In that case, you could sell call options above the current price of the stock heading into earnings. That way, if the company moves lower on earnings, or stays about the same, you will profit the value of the call option that you sold. However, if the company moves higher and above the strike price of the call option you sold, you will be assigned a short position on the stock at your strike price.
A classic example of this came in an email we sent prior to AAPL earnings in November of 2018.
This is a fantastic strategy for longer-term plays where you want to enter a specific direction, but only if the price is right.
Using options spreads to vary your risk and aggressiveness
Vertical spreads can be a fantastic way to play earnings. They allow you to get into lots of positions with a limited risk on each position (sometimes under $100). This is ideal because the basis of our earnings predictions is built around increasing your number of occurrences to properly capture the value from the edge that our data produces.
If you want to be pretty aggressive on an earnings play, buying
A more conservative approach would be to sell a OTM vertical. If you’re bullish and sell an OTM put spread, you’re simply betting that the stock will NOT go down significantly (you get max profit if it stays where it’s at, goes down a little, or goes up).
Buying ITM options to reduce capital usage
Similar to just buying or shorting the stock itself, using in the money options to establish a bullish (buy ITM calls) or bearish (buy ITM puts) position is a pretty simple play. This can be an effective way to use less of your capital per trade. The deeper in the money you go, the more conservative your play, and the more capital required.
LOTTO PLAYS — buying OTM calls and puts
Sometimes you may have very strong conviction about the earnings play and be willing to take on a high level of risk in exchange for a high potential reward.
Buying OTM options gives you an aggressive risk/reward profile.
Many of our members will combine one of these strategies with another. For example, if you’re feeling very bearish on AAPL at $225, you might sell a 235/245 call spread (fairly conservative) AND buy some $215 strike puts (aggressive).
The strategies are nearly endless. Finding a combination for each trade that fits your personality along with your research is an art that takes time to master…but once you get there, it is a beautiful thing indeed.