Some of the best trades are high probability trades before earnings reports. Every earnings trade is risky, but it’s good to improve your odds of success.
The big trade on December 1 was to short Workday Inc. (WDAY). Here we show you how to combine charts, option activity, and the action of the “companion” stocks to try and predict the reaction a stock might have to earnings.
The first step is to look at how stocks in the same group have been performing recently. The reason for this is that if the group is selling off, the probability increases that WDAY will as well. You can use a free web-based product called FINVIZ to screen for stocks in the same group. As seen here, many have been acting poorly.
The next step is to look at WDAY on multiple time frames. As seen here, it was looking close to a breakdown on an hourly chart and was in a daily downtrend.
The last step was to look at the option activity the day of the earnings. As seen here, the put volume SWAMPED the call activity.
These were enough reasons to initiate a short. The stock sold off 15 percent! While earnings trades can be a guessing game and carry a lot of risk, there are ways of having the odds in your favor. Using multiple time frames, looking at stocks in the same group and analyzing the options volume can help you do just that.
Simpler Trading is the market leader in interactive financial trading education. Founded in 2010, the company has provided expert guidance and coaching to over 350,000 customers across the USA and globally. Simpler Trading’s veteran team combines over 200 years of market experience and provides in-depth knowledge and actionable, real-time trading advice across stocks and equity options as well as futures and Forex. Using state of the art technology, Simpler Trading delivers daily training to thousands of users via webinars, one-on-one coaching, live trading, interactive chat rooms and mobile solutions.
{loadposition user99}