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Top Stock Trades for the Week of Jan. 18, 2022

stock trades - Top Stock Trades for the Week of Jan. 18, 2022

Source: Shutterstock

Banks just kicked off earnings season, and the Street is gearing up for much more to come. Every quarter around this time, investors turn their attention to the metric that matters more than any other – corporate profits. The reactions can be epic, with companies that deliver seeing instant gains and those that disappoint getting wrecked. In this week’s top stock trades, we’re looking at three darlings that scored big after their reports.

Two of the three scored outsized price gaps breathing fresh momentum into the charts. Though the third lacked a notable gap, it was one of the few financial stocks that stayed aloft after earnings. Most of the sector sunk after releasing underwhelming numbers.

I’ve found success in trading in the direction of these quarterly reactions. While profit-taking will eventually strike today’s trio, any weakness is a gift and will create lower-risk entry points.

That said, here are my favorite winners in the early innings of the earnings season.

  • KB Home (NYSE:KBH)
  • Taiwan Semiconductor (NYSE:TSM)
  • Wells Fargo (NYSE:WFC)

After a brief look at each chart, I’ll map out an easy way to profit with options.

Top Stock Trades for the Week: KB Home (KBH)

KB Home (KBH) stock chart with bullish breakout

Source: The thinkorswim® platform from TD Ameritrade

Anything connected to real estate has been on fire over the past 18 months, and that includes home builders. But there have been some corrections along the way. For example, the sharp rise in interest rates had bulls on the ropes over the past few weeks. Fortunately for KB Home, earnings arrived to save the day.

On Thursday, Wall Street cheered the report, sending shares up more than 16%. Prices sailed through multiple resistance zones, officially turning the short-term and intermediate-term trends back up.

Given the magnitude of the jump, I wouldn’t be surprised to see some consolidation as we absorb supply coming in at the $50 ceiling. However, as I said in the lead-in, I think any weakness over the coming days will prove temporary.

To bet on KBH stock staying aloft, I like selling puts.

The Trade: Sell the February $44 naked put for 55 cents.

If the stock stays above $44, you’ll pocket the $55 per contract.

Taiwan Semiconductor (TSM)

Taiwan Semiconductor (TSM) stock chart with strong earnings gap.

Source: The thinkorswim® platform from TD Ameritrade

Taiwan Semiconductor’s recent breakout has been a long time coming. The popular growth stock lay dormant for months, even as other chip stocks were rocketing to the moon. Meanwhile, earnings continued to improve, creating some much-needed multiple compression. The well-rested stock finally took flight in anticipation of and in response to robust earnings.

Thursday’s launch returned prices to their old peak, and TSM is now itching for a breakout to new all-time highs. The last two candles show there’s still some supply to work through before moving higher. The size of the bars, particularly the length of the upper wicks, does make it hard for a low-risk entry for directional trades.

If you want to profit while a cleaner entry emerges, consider selling put spreads.

The Trade: Sell the February $130/$125 bull put for 90 cents.

If TSM stock sits above $130 at expiration, you’ll capture $90 per contract.

Top Stock Trades for the Week: Wells Fargo (WFC)

Wells Fargo (WFC) stock chart with positive earnings response.

Source: The thinkorswim® platform from TD Ameritrade

After sifting through bank earnings, I was able to find one company that reacted positively to its number. Wells Fargo climbed 3.7% Friday on above-average volume. The gains were made all the more impressive because WFC stock had rallied two weeks straight into the number.

Rising interest rates and a persistent push into value stocks have benefited the financial sector. So I wanted to include at least one bank for this week’s top stock trades. As the only big name in the space that saw buying after the news, WFC was the obvious choice.

Prices are extended, so I’m once again favoring a higher probability naked put over a new directional play.

The Trade: Sell the February $55/$52.50 bull put for 50 cents.

You’re risking $200 to make $50 per contract if the stock is above $55 at expiration.

On the date of publication, Tyler Craig was LONG TSM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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