12:55pm (EST) Despite some solid earnings report, the market is struggling to end the week on a high note.  We are at the heart of earnings season and this week has been full of good news and good trades if you picked the right options.  It’s no secret that earnings can move stocks but picking the right stock and the right option is an art.  The great thing about option investing and taking these types of trades is that you don’t have to risk a lot of money to make an incredible return.  In fact, a 5% move in the STOCK can easily return over a 100% on an OPTION.  Of course, these types of trades are all-or-nothing because if you are on the wrong side you can lose a major portion of your investment. Not only that, a company can report great earnings and give tempered guidance which sometimes sends the stock reeling.  For the current quarter, we said weeks ago the key would be revenue growth and the good news is we are seeing that.  Although we didn’t take this trade, we thought we would show an you an example of just how powerful an earnings announcement is and how much of a return or loss you can expect if you trade these types of events.  We profiled a Nike (NKE, $63.69, down $1.49) earnings trade a few weeks ago in the Members Area that returned our subscribers up to 175% but we didn’t see this one coming from Microsoft (MSFT, $28.39, up $1.80). We mentioned Microsoft’s earnings this morning and yesterday in the 1pm update but didn’t recommend a trade because the stock has not traded well the past few quarters after the earnings announcements.  This stopped us from buying any call options.  However, it certainly wasn’t a stock we felt comfortable shorting or buying puts because the stock has been in an uptrend albeit a slow one and we didn’t think there was any money there either way.  Well, as you know, Microsoft crushed it and its stock is up 7% today.  Not bad, but let’s look at how the options did.  Remember, I told you a 5% move in the stock gets you a 100% return or a 90% loss with the right and wrong options.  Well, wait until you see what a 7% move in a stock does…  Microsoft shares closed at $26.59 yesterday so at 3:30pm (EST) you could have bought options based on which way you thought the stock was going to move.  You did your research on the company and figured they were going to have a blowout quarter and you knew XBox could be a key catalyst to an earnings and revenue surprise.  You figured the stock could move 5% so you go long or buy call options.  Folks, the MSFT November 27 calls (MSQKB, $1.62, up $0.97) are up 150% today.  These were the closest call options that were “out-of-the-money” and you could have picked them up for 65 cents yesterday.  A 10 lot trade would have cost you $650 yesterday and as of today you would have over $1,600.  That is $1,000 in less than 24 hours. Now, let’s look at the other shoe… Let’s say you thought Microsoft was going to report a lousy quarter or say some negative things and you thought the stock was going to drop.  You could have went slightly out-of-the-money and found some cheap put options for about the same price as the call options you were looking at. The November 26 puts (MSQWA, $0.12, down $0.55) closed at 67 cents yesterday so your $670 is now worth $120.  That is a loss of 82%.  Now, you could still hold onto to these put options but they will probably go to zero because the stock is unlikely to trade back down to $26 by November 20th which is when the options expire.  But they could…the stock would have to get to $25.35 for you to break even, if not, your options are worthless and you lost 100% of your investment. Earnings trades are bets but just like most things in life you can put the odds in your favor by doing some research.  Again, things may not go your way on all of these types of trades but often times you can find the companies that are going to wow Wall Street and make a sweet return. We do play earnings and there are probably a few trades that we will be looking at next week.  Most of our trades are profiled BEFORE or AFTER earnings as we try to eliminate a little of that risk and the emotion of one-day trades.  However, we see some really good opportunities on a few companies that could provide for some excellent trades for next week.  Having said that, there is TWO trades that we are playing today and current subscribers can check the Members Area RIGHT NOW for the trade.  One is a speculative play, the other is an earnings play.  The company reports earnings on Monday BEFORE the bell and traders are building positions before the weekend. We will talk about them more in the Weekly Wrap and in the Members Area on Monday morning.  If you are not a current subscriber you can signup NOW to get instant access or over the weekend to get the Weekly Wrap and Monday morning’s Current Trade updates… As we head to press, the Dow is down 72 points to 10,008…]]>