earnings trade

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I haven’t seen the earnings report, but I’m guessing it was a bit better in some respect than expected and the stock jumped 25%

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(Reuters) – Amazon.com Inc (AMZN.O) reported a better-than-expected rise in quarterly revenue, powered by blockbuster growth in its cloud services unit and an increase in subscriptions for its Prime loyalty program.

The world’s biggest online retailer’s shares were up 2 percent in after-hours trading on Thursday.

Amazon forecast current-quarter net sales of between $31.0 billion and $33.5 billion, factoring in sales from its Prime Day annual shopping festival.

The company’s net sales in North America, its biggest market, jumped 28.1 percent to $17.67 billion.

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I have been so busy with court cases, school and work, that I haven’t really had time to follow the earnings to date. AMZN and GOOG report today after the market close and are both big movers, rich with premium.

Nothing much in GOOG for me, but AMZN has a trade. I placed a condor at $797/$715. It has 1 day’s trading to expiry. It looks like last earnings AMZN jumped the $50, so it could easily do so again.

That of course is the problem with these high fliers…they are really high risk and can do pretty much anything.

So pretty much fingers crossed.

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The IV in JPM has stayed flat at 27. This may be normal for the banks, but I haven’t really traded banks that often.

The expected move over the earnings report, which is before tomorrow’s open is $1.99, which is a 3% move. That figure assumes that the estimates are correct and guidance is fairly neutral. If either one of those assumptions are incorrect, then the move could be higher.

I would prefer a bit of a shock, or a huge shock actually, and see a 20% move.

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I’ll calculate the expected move in JPM once the stock enters its pre-earnings run-up. I’m guestimating over a 5 day period, about $5, which is about a 7% move.

If it can move 4% on the news, good/bad, then over the next 4 trading days it only needs to move 3% in the same direction, to give the estimated move [if that is actually $5]

Of course if there is a significant earnings surprise, or guidance, then a 20% move is not unheard of. FB in the last earnings cycle is one example. Contrary to the usual earnings strategy, an earnings surprise would be a great thing if it were to happen.


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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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Earnings took the stock nowhere really, so my trade returns 22% overnight.

There are a few more potential candidates that are available next week that may well prove worth trading ahead of the next earnings season starting in July.

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