Monday January 19, 2015 – Weekly Market Update

I mentioned last week that I fully expect that we
will see tremendous volatility this year.

The very next day, the S & P 500 had a daily range
of almost 50 points. That was followed by three
straight days where the range was around 30 points.

When you consider that just two weeks earlier, the
S & P 500 was averaging a daily range of around
8 to 9 points, the recent moves are quite massive.

This type of volatility has the potential to make
you money, but it also has the potential to
take your money and create a lot of frustration.

This is because if you are wrong on an entry
the move against you can be quite massive.

And it can happen fast.

I fully expect this will be more of the norm this
year.

Time to move onto another topic. Today, I want
to discuss earnings season.

Last Monday began the new earnings season with
Alcoa reporting after hours.

There are a lot of people who trade earnings.
And there are a lot of methodologies that people
employ to trade earnings.

Some people buy straddles BEFORE the earnings
announcement.

Some people will sell out of the money credit spreads.

Let me what what I like to do, especially if the company
reports on Thursday afternoon or Friday mornings …
and they have weekly options.

If a company reports at that time and has a price move
that crosses a few strike prices, I tend to take notice.

Let’s take a look at a company that reported last week,
Goldman Sachs (GS).

GS opened down at $176.73 and dropped to a low of
$174.06. After firming up, it ran up to a high of $178
on the day.

So, about a $4 move off the low. And that $4 move
crossed the $175 strike.

So, you could have bought an out of the money call
that moved in the money.

These are the most profitable option trades you will
find … especially if it occurs on a Friday when the
time premium is the lowest.

I hope this gives you some ides for this earnings season.

I will share some earnings trades in future editions.

Until next week, trade safely.

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