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

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

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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