Q2 Earnings Season Kicks Off
As you can see above, we’ve got a lot of companies releasing earnings this week. For names where we’re trading off of social data, I’m going to streamline the outside data I look at in addition for confirmation and timing to these few:
Zacks Earnings ESP (Expected Surprise Prediction).
Portfolio Armor options market sentiment.
Chartmill Setup rating.
What these three metrics have in common as opposed to others we used last quarter is that they’re all essentially forward-looking. Of the three, the setup rating may be particularly helpful in that it’s a measure of technical consolidation. A low setup rating suggests a stock may be overextended, which in turn suggests a bullish earnings report may already be priced in.
With that said, our first earnings trade is a bullish one, where Zacks Earnings ESP is neutral, Portfolio Armor’s options market sentiment is bullish, and Chartmill’s setup rating is 7 (out of 10).
Details below.
The Trade
The stock is Morgan Stanley (MS 0.00%↑) and social data on it is bullish. The trade is a vertical spread expiring on July 21st buying the $86 strike calls and selling the $87.50 strike calls for a net debit of $0.72. The max gain on 5 contracts is $390, the max loss is $360, and the break even is with MS trading at $86.72. This trade hasn’t filled yet. If it doesn’t fill as we get closer to the close, I may raise my net debit to $0.73 or $0.74, but no higher. It just filled at $0.72.
Exiting This Trade
Assuming this trade fills, the spread here is $1.50 ($87.50 - $86), so I’m going to set a good ‘till cancelled limit order to exit this trade at 90% of that spread, or $1.35. As we get closer to expiration, I’ll lower that limit price if necessary.
Do you mean the July 21st 87.50 strike calls? I don't see an 87.50 strike price on July 28th but the math works out for your max gain, max loss, and break even using the July 21st calls.
Exited this trade at a net credit of $1.35 today, for a gain of 88%.