3 easy-money trades to make right now

During earnings season we have quantifiable volatility. What we don't have is direction, but with some basic deduction we can indeed predict outcomes.

By Traders Reserve Oct 21, 2013 10:15AM

Stock market © Digital Vision/SuperStockBy Jamie Dlugosch

 

Now that we have the nonsense of the government shutdown and debt ceiling debate behind us, we can focus on making money in our portfolios.

 

Right now – earnings season – is one of the most harvest-rich environments for making huge profits in a short period of time. As we are already seeing, when companies report operating results the moves made immediately after are quite large.

 

This past week we have seen stocks like International Business Machines (IBM), Mattel (MAT), Goldman Sachs (GS), Chipotle Mexican Grill (CMG) and Google (GOOG) all take large price swings after announcing earnings.

 

The market is inefficient. When reporting operating results, the valuation dynamic changes. Instead of relying strictly on speculation, investors now have facts to digest. Because speculation often gets it wrong in a major way, when earnings come out the stock price change can be substantial.

 

During earnings season we have quantifiable volatility. What we don't have is direction, but with some basic deduction we can indeed predict outcomes.

 

With those outcomes we can place a trade in advance of the event. The best way to profit and profit big is with basic call or put options.

 

With these leveraged positions we can double our money or more in a very short period of time. I'm seeing some juicy trends developing this earnings season. The biggest opportunity is on the down side. Stocks are richly valued and earnings estimates are falling. There is likely to be more disappointment than joy this quarter.

 

Here are three put-buying opportunities to make right now:

 

Cabelas (CAB)

The consumer is doing all it can to spend, but the government shutdown hurt confidence. The risk of a retailer like Cabelas lowering guidance is quite high. This is not the time to pay a premium for any stock. In the case of Cabelas, shares are expensive relative to expected growth. Analysts expect the company to grow profits by 13 percent in 2014. At current prices shares trade for 18 times 2013 estimated earnings.

 

The company has matched or exceeded estimates in 3 of the last 4 quarters. I don’t see blowout potential here, just the opposite. Bet against this one when the company reports earnings on Thursday before the market opens.

 

Action: Buy CAB November $60 Puts before the company reports earnings.

 

Akamai Technologies (AKAM)

The technology company reports earnings for the quarter ending Sept. 30, 2013 on Wednesday after the market closes. The technology sector might be the most vulnerable to a correction during the current earnings season. Given that stocks in the group are richly valued, why not take a shot at prospering from the decline?

 

With Akamai, analysts expect the company to grow profits in 2014 by 13 percent. At current prices, the stock trades for 27 times 2013 estimated earnings. That is a huge premium. This one comes down when the company reports results next week.

 

Action: Buy AKAM November $52.50 Puts before the company reports earnings.

 

E*Trade Financial (ETFC)

The online investment firm reports earnings for the quarter ending Sept. 30, 2013 on Wednesday after the market closes. Investors were frozen like deer in the headlights during the government shutdown. As such, investment activity likely slowed to a crawl. Those precious days of lost trading are likely to show up in the form of downward guidance at E*Trade. Analysts expect the company to grow profits by 20 percent in 2014. That’s where downward guidance will hurt. At current prices, shares trade for 26 times 2013 estimated earnings. Look for a drop in share price of 10 percent or more on any weakness in earnings.

 

Action: Buy ETFC November $18 Puts before the company reports earnings.

 

More From Traders Reserve

6Comments
Oct 21, 2013 2:53PM
avatar

This is what makes a market ... I believe Etrade will move higher after earnings.  The look through of earnings reported by Charles Schwab (EPS up 16%) and Morgan Stanleys Smith Barney brokerage were very strong. The lower guidance is a possiblility ... but if you look at the trading volume on NYSE, the volume in the first week had a down day of 11% off the daily average, a down day of 8% a up day of 33%, a day at average volume, a day down 13%, a day down 12% a day up 28% and a day up 7%.

Maybe there wasn't any deer or any headlights.

Shares of Etrade are 6.2% short of float with a short ratio of 4.4 days of volume to cover. 

I am Buying calls 18, 19, 20 strikes.

Oct 24, 2013 12:58PM
avatar
very good Jamie, I made money on two I got but you made a perfect call on all three
Oct 24, 2013 10:31AM
avatar

THANK YOU for these trade ideas....

 

Took your advice on AKAM and ETFC after reading this article Monday....sold out this morning after doubling my money on AKAM and a 35% gain on ETFC, THANKS!

 

What are your latest ideas?

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