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I have a trade for you today on Walmart earnings.
Our strategy has allowed us to reap over 825% in gains since October 2017 (click here for details). That’s right, 825% . . . and we have the track record to back it up.
You see, years ago, I never thought it made sense to trade earnings. It was a foreign concept due to numerous limitations (commissions, liquidity, no weekly expirations). Trading earnings announcements just didn’t make sense from an efficiency standpoint.
Well, things have dramatically changed.
Add 52 weekly expiration cycles, a variety of highly liquid products and the clarity of a once unknown calculation . . . and we now have the opportunity to trade earnings news in an efficient, informed and highly profitable manner.
The Key: Expected Move
Today I want to focus on the “unknown calculation” . . . It’s a major advance in the way all traders approach the market, especially during earnings season.
The unknown calculation? Expected move.
Well, I’m sure most of you are asking, what is “expected move”?
Expected move is the price movement the market expects during a given expiration cycle. It’s the key to successfully trading earnings announcements. Fortunately, now we have tools that allow us to see, in real-time, the expected move for any given underlying stock around its earnings release.
This one calculation gives us the supply and demand for any individual security in real-time. That is incredible information to have if you are trading during earnings season.
Walmart Earnings . . . and Other Trades
During the coming week I will be sending out potential trades in Walmart, Home Depot, Target, Lowe’s and several others. To learn how to use this approach and to get details on the trades, please click here to reserve a spot at my upcoming briefing.
Let’s look at Walmart earnings (WMT).
As expected, implied volatility (IV) is high as we move closer to the uncertainty of the WMT earnings announcement. We ALWAYS want to see heightened levels of IV when seeking trading opportunities around earnings. Increased levels of IV means inflated options prices . . . basically, that means we can sell options for more premium than usual.
We have several tools at our disposal to figure out what the expected move is for WMT immediately following the Walmart earnings announcement. You can see the expected move embedded in the options chain on the Tastyworks platform. The expected move is from $125 to just over $139, for an expected move or range of $14.
Knowing that the expected move is $14 gives us the opportunity to utilize a variety of strategies based on our market assumptions in WMT (bullish, bearish or neutral).
I tend to stick with risk-defined, neutral-based strategies like an iron condor. This one strategy has been the leading factor in the majority of the 825% gains I have reaped since starting the strategy just under three years ago.
Since we know the expected move in WMT is $14 after Walmart earnings are reported, we can create a range-bound trade around the expected range as seen in the options chain above. And as long as WMT shares trade within that range immediately following the WMT earnings announcement, we should be able to buy back the spread for a nice profit due to volatility crush.
The probability of that occurring is roughly 80% on the downside and over 80% on the upside.
The increase in volatility, followed by the rapid decline, affords us the opportunity to take advantage of some nice profits as we trade Walmart earnings.
I hope this short article on expected move gives you the insight you need to trade earnings and make sound judgments on each and every earnings trade you decide to take on.
If you would like to know more about the strategy, risk-management techniques and more importantly, how we have reaped over 825% since we started to trade earnings, please click here. I’ll take all of your questions during this deep-dive event.