Wild market swings don’t have to be frightening…
Try these earnings trades and you’ll see why volatility can be an earnings player’s best friend.
When it comes to earnings trading, large share price moves are most welcome—it’s our opportunity to profit from the untimely value correction that comes when operating results are released.
In most cases, the time to place an earnings trade is immediately prior to the event. Occasionally, the inefficient market takes things too far, allowing us to place our trades at bargain-basement prices.
An oversold stock provides a wonderful entry for longer-dated earnings trades using simple call and put options.
The payoff comes down the road when earnings force the market to re-price the stock.
This week, we saw just how powerful that can be, even when the news is only so-so.
Let’s look at what happened, then we’ll check out 3 oversold earnings trades for you to consider making today…
Neither report stunned the market with impressive results. Nonetheless, shares of both jumped after the news.
Imagine the move if the numbers were better than expected?
It’s those moments that create big profits for earnings traders.
Here are 3 oversold earnings trades to consider making today…
Buffalo Wild Wings (BWLD)
The casual restaurant has stumbled in the last year. The company missed earnings estimates, and, as a result, shares sold off.
With the stock down, the time to buy a call option is now, in front of fourth-quarter earnings.
Stronger-than-expected numbers will make this one jump 10% or more.
Our next name had a tough 2015, but there could be a twist in play…
2015 will go down as one of the most disastrous years for the entire commodity complex.
Weak global demand and excess supply means only one thing: prices will fall, as will profits.
As a result, stock prices of companies like U.S. Steel (X) have collapsed.
What if the news isn’t as bad as expected?
The operating results might be as bad as expected, but earnings reports also include guidance looking forward. It’s that guidance that should help boost shares of U.S. Steel higher after results.
Before the market rallies, lifting the share price of U.S. Steel, consider buying call options on this oversold stock.
Our next name is a big one. Last year, it was up. This year, it’s down. Here’s what’s in store for 2016…
Whole Foods Market (WFM)
Prior to this year, Whole Foods (WFM) was a darling of the momentum crowd.
It always helps to have products that those with money desire; they almost always buy the stock, too.
That was the case with Whole Foods until competitive pressures and a low-growth economy brought down the stock. Throw in a series of missteps, and shares are now worth half what they were previously.
Now, as the year closes, 2016 is shaping up to be a better year. Fourth-quarter earnings will likely prove that.
Goldman Sachs recently said Whole Foods will be an outperforming stock in 2016. I concur.
Buying a call option on this oversold stock is a wise decision before that outperformance occurs.
This post originally appeared in mainstreetinvestor.com.
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