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I have initiated a position for an earnings trade in JP Morgan. The trade is looking for a +4% directional movement or greater.

This is the inverse of a ‘sold’ earnings trade, where rather you will look for a directional movement of less than 12% (for example).

So rather than selling volatility, I am buying volatility.

There are advantages/disadvantages.

The major advantage is that the risk/reward is skewed much more closely to a 1:1 return, but the probabilities of the move are lower. This is contrasted to a high probability, but a very unfavourable risk/reward, somewhere around 1:5.

I have tried to skew the probabilities higher by trading the earnings release. The idea being that news will create enough of catalyst to move the stock +4%.

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