Sunday, July 24, 2016

Minimize Risk During Earnings Season

We are heading into a very busy earnings report this week from the titans like $AAPL, $GOOGL, $FB, $AMZN, $KO, $MCD, $AMGN, $TWTR, $MBLY and $EW.  Major oil companies that have been beaten down for the past 24 months will also be reporting their earnings this week.  The tech titans trade huge volume of shares daily and they account for over 25% of the total $ volume traded daily on the $NASDAQ.  They will move the market for sure.  How stocks react to earnings and the guidance going forward is anybody's guess.  It is speculative and risky for retail traders to be holding onto the stock positions during earnings unless it is collared with selling a call and buying a put.  I lower my risk of losing my profits by closing the positions prior to earnings report release.  This is always built into my  Trading Plan

Below is a list of stocks that were on  My Watchlist  that I highlighted in my posts in June and July.  I have indicated entry price and profits made when the positions were closed off.  If you have been doing  Virtual Trades   that I have been suggesting to my followers to practice trading and sharpening trading skills, this will also be the time to make detailed entries of the trade in the journal.  This will allow you to look over your trades in future for valuable lessons learnt in trading.  Brexit  was a bonanza for some of the traders since devaluations of the Euro and British Sterling Pound currencies enabled the Gold miners to shine during several weeks of uncertainty.

Stock Positions Closed for Profit

  1. $AU  $15.96 closed 7/1  for 19.30% profit in   4  wks
  2. $ABX $19.73 closed 7/12 for 9.98%  profit in 5.5 wks
  3. $GDX $25.13 closed 7/12 for 16.99% profit in 5.5 wks
  4. $OKE $44.33 closed 7/13 for  9.00% profit in 4    wks
  5. $AEM $48.47 closed 7/20 for 10.00% profit in 6.5 wks
  6. $NEM $34.99 closed 7/19 for 18.29% profit in 6.5 wks
  7. $SLW $20.39 closed 7/22 for 28.25% profit in 6  wks
  8. $BGS $44.00 closed 7/22 for  7.68% profit in 6  wks 

Market Outlook

Currently my sentiments is very bullish. July normally is a dull month and the market just does +0.32%  when you look over the average the past 50 years.  This year it surprised most traders and most were caught off guard.  Institutions have been investing their profits into defensive utility names and dividend paying stocks.  That all changed at the end of June and the overall market surged 4% in just 4 days.  That is a very powerful move by the indices.  In the last 4 weeks :

  • $DOW  is +8.35%
  • $SPY   is +8.00%
  • $QQQ  is +10.00%

Market has been very resilient for the past 7 sessions and indices has been trading within a very narrow range.  We have only 2 distribution days each for $SPY and $NASDAQ.  Most companies will be reporting their earnings in the next 3 weeks and we are starting off with some titans reporting this week.  100 of the S&P 500 companies have reported earnings so far and the market has reacted very positively towards it.  Charts of the 3 major indices that I monitor  ($SPY, $QQQ, $DJX)  look very similar to Oct 2014, Oct 2015 and Feb 2016 when the indices surged more than 10% within 6 weeks from the lows.  Momentum in the market is very strong and I have my sights set on the following targets for the indices in the next 4 weeks

  • $QQQ 119
  • $SPY  225
  • $DJX  19,300

Option Trades

Most of the growth stocks that are on my radar are extended with the surge in the market we experienced the first 2 weeks of July. My post last week I had presented a detailed case study on $NVDA that was extended and where I highlighted the use of Credit Spread Option trades to squeeze some profits every week from a stock that continues to be accumulated by the institutions and maintains an RS rating of 98.  I also mentioned $ULTA as a possible candidate too.  This stock is extended but consistently shows up on the IBD  (Investors Business Daily)  sector leader screen, reaching new highs with RS line pointing up.  You might want to examine similar trades utilizing the 3 major indices that I monitor.  Do as many virtual trades as you can to learn how best to identify the right option strategy to profit from the momentum in the market.  

Last Wednesday I had placed Credit Spread Option Trade on:

 $SPY July (week 5) sell 216.5 put and buy 214.5 put for Credit $52:$148 Risk per one contract.   

On Monday I also placed a very similar trade on :

$NVDA July (week 5) sell 52 put and buy 51 put for Credit $31:$69 Risk for one contract.  

I never ever do naked option because that would be unlimited risk and I am all about mitigating risk in the market.

Happy Trading!

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Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.

The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.