Next up is Jonathan Rose and his trading approach to earnings season
For newer readers, Jonathan is the analyst behind the free trading service Masters in Trading Live. He’s also a trading veteran who’s pulled millions out of the market over the last 10 years.
One week ago, we profiled one of Jonathan’s favorite ways to trade earnings. It doesn’t require you to know which direction a stock will move; you just need to take advantage of a pricing imbalance.
This is how pros trade earnings season using options.
In short, you use historical data to establish a baseline for how much a stock and its options move in the runup to an earnings announcement. Let’s say that the average baseline move is 10%, and this has been consistent for the last several years.
Well, if, say, 30 days from the earnings announcement, the market makers are pricing in a move of just 7%, well, that’s a pricing imbalance – and likely a profitable trade.
In this situation, Jonathan will often buy two options – one that will benefit if the stock soars. One that will benefit if the stock tanks.
It doesn’t matter which way the stock moves, Jonathan profits as long as the move is big enough (enabling the winning side of the trade to net out higher than the losing side of the trade).
Fortunately, Jonathan has high-powered computers that scan the market to identify the stocks that are currently priced incorrectly, suggesting they’re the most likely to make this big move.
A recent example we’ve provided is Jonathan’s trade on Pure Storage (PSTG). When it reported earnings back in February (its 2023 Q4 earnings report), Jonanthan’s subscribers walked away with 193% gains in just over three weeks.
We’re only a handful of weeks away from Q2 earnings season beginning, so we’re expecting to hear a lot about this type of trade very soon.
So, what’s Jonathan talking about today?
The best way to find out – totally free – is to tune into his daily livestreams at 11 AM Eastern. He does them every day the market is open.
But to answer the question, yesterday, Jonathan looked at opportunities in the oil patch. He highlighted real-time volatility and discussed why patience will pay off as we move into the summer driving season.
He also spotlighted Enovix Corp (ENVX), which designs and manufactures lithium-ion battery cells. As you can see below, ENXV just spiked on positive news of a new partnership.
While this trade is live, it’s looking like it could be a monster triple-digit winner.
Important: This is not an official trade recommendation. Without knowing Jonathan’s entire investment thesis, and without having opened the trade per his guidance, we do not suggest you take any actions on ENVX right now.
But for Jonathan’s existing subscribers, congrats – this one is shaping up to be a whopper.
To learn more about how Jonathan trades earning season, click here.
Finally, we’re welcoming a new face and trading style here in the Digest – Tom Gentile
You might already know Tom’s name. He’s been prominent in our industry for decades, having develop the nickname of “America’s Pattern Trader.”
In short, Tom came from very humble beginnings in a small steel town just outside Pittsburgh. Not satisfied with driving a forklift at Home Depot his entire life, he taught himself how to trade in his parents’ basement.
That led to a trader education company called Optionetics, which Tom eventually sold for $20 million.
Rather than retire, Tom put together a team of data analysts, programmers, and actual rocket scientists from NASA and Raytheon to build sophisticated software to screen for the key trading patterns he’d been uncovering.
He began sharing his system with a small group of traders. Eventually, it ballooned into an audience of more than 1 million traders/investors.
Today, we’re thrilled to welcome Tom to our corporate family.
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Let’s briefly key in on the term “pattern” that is synonymous with Tom’s trading style
From the same Bloomberg piece from above (emphasis added):
Thanks to reliable trading patterns, 104 of the 106 indexes tracking fast-money strategies are up this year, according to a Hedge Fund Research gauge.
Pattern trading is at the heart of Tom’s approach. Here he is to describe how it works:
When I was learning how to trade, I noticed how a handful of stocks had their own seasonal patterns.
I’m not talking about seasonal patterns that everyone knows about like “Sell in May and go away.” I’m talking about patterns that occur regularly in the best 370 U.S. stocks… every day the markets are open.
A tool I’ve created called the Money Calendar uses 10 years of historic data to spot specific windows – usually 35 days or less – when certain stocks move up or down.
What I’m looking for is a bullish or bearish pattern that repeats over the same windows 90% of the time (9 out of the last 10 years).
The idea is simple – look at a stock’s price action that has repeated in the past with a high degree of reliability and make a calculated wager that the pattern will repeat again.
A few illustrations of Tom’s wins from this pattern-based trading style include Tesla, that delivered a 60% profit over 40 days… Nvidia, which jumped 23% between January 11 and February 16… and Microsoft, which made traders 20% in 38 days.
In Tom’s e-letter service Patterns & Profits, he shares these patterns – for free – five days a week.
He also talks specifics about the tactics and strategies he’s developed over more than three decades of trading. To sign up and begin getting Tom’s latest trade ideas, click here.
One aspect of momentum trading to watch closely
Momentum has worked great this year. So great, in fact, that it’s drawn a lot of hedge funds into the same trades.
This can mean big money…until the trend reverses and there’s a stampede for the door.
Back to Bloomberg:
The overlap between long-momentum bets and hedge-funds holdings is at record high.
That’s created a risk that the current gains could be jeopardized if trends reverse — since many have been piling into the same directional trades, and could unwind them in unison.
When everyone is on the same side of the trade, that becomes a very unbalanced position. So, make hay while the sun is shining, but stay nimble. Of course, being nimble is one of the key benefits of trading.
We’ll keep you updated on all three styles from Louis, Jonathan, and Tom in the weeks to come. But, bottom line, this market is making money – let’ s take advantage while we can.
Have a good evening,
Jeff Remsburg
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