I’m going to change things up today.
I usually tell you to sell options. And with good reason:
There’s a huge, built-in advantage to doing that, because most options BUYERS lose money. (which means most options sellers… make money!)
But today I want to talk to you about buying options. Because big things can happen with options over earnings.
Now, when you buy options, you really need a good event to happen…
Because you only see the biggest bang for your buck when the underlying stock makes a big move.
And with earnings season in full swing, there are a couple of events on the calendar next week that are going to do just that:
Tuesday – January 30th
- Pfizer (PFE)
- Microsoft (MSFT)
- Alphabet/Google (GOOG)
Wednesday – January 31st
- Bank of America (BAC)
- Qualcomm (QCOM)
Thursday – February 1st
- Amazon (AMZN)
- Meta/Facebook (META)
As I said before, I’d normally be telling you to do a strategy that lets you sell options on these stocks. That’s the main thing I do.
And I think it’s the main thing most people should be doing.
But let’s have a little fun and talk about straight up buying call options. Because the volatility that earnings brings could make for a huge trade.
This is a great exercise to try yourself. Do it as a paper trade to see how it does.
What you do is pick one of the stocks that you think will be one of the biggest movers when it reports earnings.
They you pick at-the-money calls. These would be the calls that are closest to the stock’s price when you buy them.
Pick an option with an expiration about 2 weeks out. You don’t want to buy too much time, but you also don’t want to buy too little time.
Then if the company reports positive earnings, sell it on the good news and see how much your at-the-money option went up.
The built-in risk here is that the company could report poor earnings and send the stock tumbling, which would send your at-the-money call tumbling in value.
You will really learn a lot when you look at how the options move in relation to the earnings report.
And be sure to look at how the options above and below the one you bought react: The in-the-money as well as the out-of-the-money options.
You’ll learn a whole lot — and I’ll check back in with you next week to see how this exercise worked out.
Trade well,
Jack Carter
PS> What I’ve described above could be a huge learning experience for you — in many ways. In other ways, it’s a huge gamble. Earnings could send the stock sinking faster than the Titanic and that would spell disaster.
But you know, that’s why I say I only place small bets when I buy options. The upside potential could be huge, but I don’t want to risk a lot of money on something like that.
On the other hand, here’s one of the strategies I use multiple times a month. There are no “sure things” in the stock market, but with 10 years of backtested data, this one comes pretty close. Click here to check it out.
