3 Option Power Plays to Win Earnings Season

Advertisement

earnings - 3 Option Power Plays to Win Earnings Season

Source: Vivian D Nguyen via Flickr (Modified)

It’s that time of the year when the earnings fairy begins her profit-giving (and -taking) work. Good little companies that worked their tails off and scored eye-popping profits are instantly rewarded with epic overnight gains. Bad companies that dared to disappoint shareholders with poor earnings or guidance for the quarter ahead are taken behind the woodshed for some old fashioned spankin’.

3 Option Power Plays to Win Earnings Season
Source: ©iStock.com/arekmalang

Every quarter produces a handful of standouts that receive outsized rewards for their performance. Today’s selections include three such gems that are killing it in the tech space. Two soared to new all-time highs following their earnings releases. And the third is ever so close to notching new highs.

Earnings gaps have a reputation for starting new trends or reigniting old ones, and that’s certainly the case with today’s beauties. All are one low-risk setup away from a stellar opportunity.

Behold, three earnings power plays.

Earnings Power Plays: Netflix, Inc. (NFLX)

NFLX
Click to Enlarge
Source: OptionsAnalytix

Netflix, Inc. (NASDAQ:NFLX) has been on fire since smoking earnings estimates. Earnings per share came in at 12 cents compared to estimates of 5.5 cents. NFLX stock was rewarded with a quick 17% overnight gain which has since been added to.

At today’s peak, Netflix, Inc. shares were 30% higher than where they sat heading into earnings. That’s an insane gain in such a short period of time.

Accumulation days have accompanied the entire ascent, showing some heavy buying by the big boys. The incessant bid has prevented any type of pullback from materializing so far, much to the chagrin of spectators. Would-be buyers have been relegated to chasing or missing out so far.

If you want bullish exposure to NFLX but are afraid of chasing, I suggest a bull put spread play: Sell the Nov $115/$110 bull put for 50 cents. As long as Netflix stock sits above $115 you’ll capture a 10% return on capital.

Earnings Power Plays: Microsoft (MSFT)

MSFT
Click to Enlarge
Source: OptionsAnalytix

With last week’s earnings jump, Microsoft Corporation (NASDAQ:MSFT) stock is finally up and over its 1999 peak. It’s not just a milestone worthy of celebration, it’s looking more and more like a bullish play.

With Mister Softee now in virgin territory, the only participants holding losing positions are short sellers. And that, friends, is a bullish omen. I expect dips to continue to get bought in MSFT over the weeks ahead.

Like NFLX, we’re going to take the option-selling route with MSFT stock. If you’re a willing buyer on a dip, consider selling the Nov $59 put option for 50 cents. If Microsoft shares remain above $59, you’ll pocket the premium. Otherwise, you’ll be obligated to buy 100 shares for each put sold at an effective purchase price of $58.50.

Earnings Power Plays: Paypal (PYPL)

PYPL
Click to Enlarge
Source: OptionsAnalytix

Since its mid-2015 initial public offering, Paypal Holdings Inc (NASDAQ:PYPL) stock has been in the base-building business. For over a year now, PYPL stock has found its home on a range between $30 and $42. Until last week’s earnings announcement, that is.

The earnings growth was finally sufficient in busting Paypal out of its range-bound prison. Friday’s 10% surge was the real deal. Massive volume accompanied the breach, suggesting any type of re-test of the upper end of the range (near $41.50) in the coming days has a high chance of success.

Although PYPL stock is suffering a bit of profit-taking in early-trading Monday, I suspect the dip is an opportunity. Sell the PYPL Nov $42 put for 55 cents. Provided the stock remains above $42, you’ll capture the 50 cents. Otherwise, you’ll have to buy 100 shares of PYPL at an effective purchase price of $41.50, which is a great spot to get long.

As of this writing, Tyler Craig owned bullish option positions on NFLX and PYPL stock.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2016/10/earnings-power-plays-nflx-msft-pypl/.

©2024 InvestorPlace Media, LLC