In a recent interview with CNBC, Jack Bogle – the former CEO and founder of Vanguard Group – admitted he had “never seen a market this volatile in 66 years.”
On top of this, we’ve got earnings season to contend with, which could send the markets soaring or crashing…
And when the uncertainty is high, I know it’s easy to be tempted to sit on the sidelines entirely.
But when you pull yourself out of the game due to unstable markets, you may be safe, but you miss huge profit opportunities, too.
So, I’m going to reveal to you exactly how to trade through earnings – even in one of the most volatile markets we’ve seen.
And it’s easier than you think…
On April 6, analysts reported that 53 companies in the S&P 500 have reported positive earnings per share (EPS) guidance. The typical average for companies reporting positive EPS guidance is 28.
And industry analysts are also predicting a 16% increase in the S&P 500 over the next 12 months.
But regardless of the positive outlook – we all know earnings can be intimidating, especially to new traders. So I want to give you these easy steps that will not only help you turn a profit, but will also give you peace of mind.
You see, when it comes to volatility, an important concept to remember is risk and trade management.
I always teach my students how to establish how much capital per trade they feel comfortable with risking.
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For example, let’s say a new options trader has an account funded with $25,000 and note that they only wish to risk 2% of their option account per trade. This would mean the investor would spend $500 or less on each trade.
During such volatile times, this is a safe approach and helps protect you as an investor from risking too much capital.
So you may be wondering, how exactly do you trade around earnings without facing the risk of a completely unexpected outcome?
Use a straddle.
A straddle is an options strategy you’d use to profit during earnings season and also during times of market volatility. It involves buying both an at-the-money (ATM) call and an ATM put with the same strike price and the same expiration. An option that’s at-the-money simply means that the stock price and the option’s strike price are the same.
This will help remove the uncertainty that surrounds earnings.
Another strategy is to use the long call or long put approach. This is done by anticipating a pop or drop going into the earnings announcement based on past history performance. With this trade, you must have the discipline to get out of the trade before earnings are actually announced.
So, even if the market turns up, down, or sideways after the impending earnings announcements – with the right tools and discipline, you will be prepared for anything.
That’s why I will always encourage education and training when it comes to trading – because with knowledge comes success.
So regardless of the market temperature over the next few week, stick to your strategies, know your plan, and plan your trade – and you will find the road to profits, regardless.
— The Option Specialist