A lot of traders either sit on the sidelines during earnings season or they jump in a ride the big waves. If you’re going to trade earnings, here’s an idea you might not have considered.
Instead of buying stocks outright, you can buy an option that acts a lot like the stock. In this case, we’re talking about weekly call options. As the name suggests, these are very short term – expiring in a week. For only a fraction of the price of the stock, you can trade earnings announcements without the risk of the full price of the stock.
For example – Apple is trading around $500 per share. That’s pretty pricey for many traders who would like to trade around Apple’s earnings announcement. But if your goal is to trade the earnings price move rather than hold Apple as a long-term investment, you can do that for less than 10% of the stock price.
Here’s how it works. You can buy an Apple weekly call for – say – $15 per share. Historically, Apple has opened higher 25 out of the last 36 quarters. When it’s higher, the stock jumps an average 6.4% higher at the open. If you buy the Apple call and it jumps 6%, you can sell your call the next day for around $20. That makes a return of about 30% in just a few days. And you have a lot less of your money at risk.
Weekly options from the Chicago Board Options Exchange. Something to think about.
Join us on January 24th at 2 pm Eastern for a live 30-minutes webinar – The Benefits and Risks of Weekly Options:
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