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Once I Corrected This Mistake, I Made Millions

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If there’s one lesson that stands out among all those I’ve learned in my 20 years of trading, it’s that even the best research, resources and skills can’t guarantee success.

When I was coming up as a pit trader, I was fortunate enough to work alongside and learn from some of the best traders that have ever played the market. Many generously revealed their favorite metrics and secret tips for finding market trends and picking the best stocks.

But the thing we never talked about was how often or how badly they lost on trades. Unbeknownst to me, this was a critical part of the equation, and one that most market gurus never address.

I remember feeling inadequate because, as hard as I tried, I still couldn’t pick winners 100% of the time. It wasn’t until I became an options market maker that I learned how to add real odds to my trading.

As a market marker, I was required to trade hundreds of contracts on a daily basis. For every trade I took, I was trying desperately to time the market so I could gain a sliver of an advantage. One of my competitors, a trader named Brett, noticed all the effort I was putting into my trades and complimented my work.

Then, he told me I was doing it all wrong.

That day, after the market closed, Brett took me out for a beer and schooled me on how the big money was made on the floor — through trading spreads. It was the only real way to give yourself an edge. I continued to study under Brett for months and we eventually became friends.

This was the secret that would change my life, and while it may sound a bit corny, it could change yours as well. Out of all the trading strategies, it’s my favorite. I’ve used it for 20 years now to make millions of dollars and help others do the same.

The Power of Simple Spreads

Floor traders buy and sell shares and options in the blink of an eye. At first glance, it may seem like they are going long, short and neutral in a mere five minutes, but there is something else going on.

The only way you can trade constantly is to “spread off” risk. In other words, you have to sell something against what you are buying and vice versa. The goal is to increase your odds and capture an edge.

The beauty of spreads is that they allow you to make money even when the underlying stock moves against you, which can improve the likelihood of success to as high as 90% per trade with even the simplest strategy.

At the same time, spreads let you control the amount of money you’re willing to lose, which helps reduce risk. And, like options, we can use this strategy in any market environment — bullish or bearish.

Over the years, I began to focus my attention solely on trading spreads, which gave me an edge in the market that I couldn’t get anywhere else.

Stubborn stock traders don’t get what they are up against…

Every time you buy shares of common stock, you have about a 50/50 shot at making money. Let’s say you buy 100 shares of a stock, for example. You either make $100 for every dollar it moves higher or you lose $100 for every $1 it drops.

If the “crowd” is having a bad day, week or month, it might decide to sell shares of the company you spent so much time researching. This means you could lose big money even though all your research pointed to the stock being a great value. By purchasing shares of stock alone, you are subject to deal with the losses in full.

Worse still is when investors become skittish and markets trade in a volatile sideways pattern for months or years. This was the case for the latter half of 2015 and has rendered many investors’ tactics all but useless.

The reality is that these situations occur all the time. Even the most experienced traders have found themselves frustrated as their portfolio values jump up and down. Over time, frustration builds and some end up exiting their positions only to have those stocks finally move in the anticipated direction after the fact.

But by using spreads to trade those stocks, we can make money whether they go up, sideways or even down.

Instead of a 50/50 shot at winning, this strategy increases your odds to 70%, 80%, even 90% per trade. Even if the stock you select goes down 5%, this strategy could generate a 30% return!

Spreads also reduce volatility to between 20% and 50% of the equivalent regular stock position. This means big, volatile moves in the stocks you trade won’t have anywhere near the effect on your portfolio value.

How to Get Started Trading Spreads

In coming weeks, I will be delving into the specific spread strategies I use — namely bull call spreads and bear put spreads — and teaching you the ins and outs so they can potentially transform the way you trade like they did for me.

But before I sign off, I’d like to invite you learn about a bold new venture called The Insider’s Club, which we envision will generate $30 million in new wealth to participants in 2016 alone.

Our mission is simple: Execute spread trades to help you make 15% to 50% profits in a matter of weeks.

Each week, I will email you all the details on my latest trade — the stock, the specific options with instructions on exactly how to execute the trade, how big of a gain it could deliver and how far the stock can move against us and still be a winner.

Each trade only takes about 10 minutes to enter. And I’ll show you how to automate the exit so we get out as soon as our target is hit.

So if you have a few minutes a week and can follow simple, step-by-step instructions, you can join The Insider’s Club. To learn more about it, follow this link.

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The Secret to Making Your Options Trades Skyrocket On Monday

The number one problem during earnings season is knowing where a stock will move after their earnings come out.

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The number one problem during earnings season is knowing where a stock will move after their earnings come out.

And that can make it really easy to to miss out on profits – or even lose your money entirely.

But you can exploit any company every earnings season – good or bad.

And it all boils down to this one little secret…


As we’ve talked about before, earnings reports are dominating the financial TV networks, websites, and even newspapers.

For example, you’ll often see a stock ramp higher in price before the company releases earnings, which could drive the markets higher. And if you don’t know the pattern, you’re virtually entering the trade blind.

Now I’ve got a proprietary system that can help you position an option trade prior to the report and capitalize on this price move higher. What you’re looking at below is the average percentage move in The Travelers Companies, Inc. (TRV) prior to earnings, which is in the 1.25% range.

PPT-TRV

And we’re going to use this as an example to see what happens if a stock gaps higher, makes a new high, or takes out a previous overhead resistance area after its earnings report.

Now there are times that options traders may try to get into a trade (let’s say a long call) in advance of the earnings or even the day before the announcement only to find that they can’t enter into the trade.

 “Old Resistance Becoming New Support”

This is a technical pattern where the price point gets established as the resistance level (meaning a stock can’t trade beyond that point) before demand for that stock eventually drives the price even higher. (Click here for a quick recap on breakout patterns.)

Sometimes a technical breakout can fail, which is actually even better. In this case, the stock trades above resistance intra-day and then closes under that price. This is likely to become a failed breakout (we’ll talk more about that later).When a stock does break out and it closes above resistance, that gives you more conviction that the price move will be sustained and that higher prices can be expected.

The stock doesn’t always keep moving straight up though…


This move shows the stock testing that old resistance and a bounce that makes the old resistance become a new support level.

So here’s the secret…

These are the three things  you want to look for:

  1. The stock comes back to its old resistance price, then
  2. It ‘holds’ ther there for a day or two, before
  3. The stock finally resumes its move upward

Look at the chart below on TRV (the green “E” triangle represents the earnings announcement):


The stock ran-up before earnings came out, as it has shown a consistent history of doing. That took it past its existing resistance level at $130. It then held above that resistance point for a handful of trading days, even after earnings.

But then look what happened…

It didn’t go into a full-scale tailspin and drop a huge amount. As you can see, it performed the classic “old resistance becoming new support” technical pattern and tested the $130 support for one day before shooting back up in price. This pattern can also work in reverse, where old support becomes new resistance.

So keep your eye out for stocks that break out above their previous resistance points or pivot point highs where a stock may break out coming off earnings.

You’ll want to keep this on your radar so you can track the stock’s previous high – maybe set an alert, if your brokerage platform allows for that capability. And when it comes back to that price, be poised to initiate a bullish option trade (or bearish in the reverse pattern).

Now it’s also important to mention that abnormal market returns are expected, starting today. It’s all thanks to this little-known market anomaly that could trigger stock moves 2,150% higher than any normal “up” day. To get the details on these trade recommendations, you have to watch this now.

To your continued success,

Tom

Original Link | PowerProfitTrades



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Make 30 Percent From This Overvalued Restaurant Stock

Cheesecake Factory (Nasdaq: CAKE) came up on my radar Friday and has me quite excited about its earnings potential… or, more specifically, the lack thereof.

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Before I gave up on Chicago winters, I managed a hugely popular and successful service called Whisper Trader. Whisper was focused solely on predicting whether a company would beat or miss earnings estimates, and the results were quite remarkable.

When I left that service (and the windy city), I took the existing criteria and added several more factors to create my own earnings prediction algorithm… one that was even more accurate than the original.

With earnings season once again ramping up, my algorithm is busy sifting through the myriad of coming earnings reports for the most probable beats and misses.

There are three main factors that influence my algorithm and ultimate decision for an options trade: Analyst changes, technical formations, and option skew. All three go into my decision-making process, along with a few other items that must pass my tests.



Today, I’m going to share a little of my “secret sauce” with all of you.Cheesecake Factory (Nasdaq: CAKE) came up on my radar Friday and has me quite excited about its earnings potential… or, more specifically, the lack thereof.

Cheesecake Factory is a fast-casual chain born in 1978. Many of you probably know the company, or maybe you’ve even been to one of its 200 namesake restaurants located in the United States and Puerto Rico (it’s the one with the overwhelmingly large menu). The company also runs 13 restaurants under the Grand Lux Cafe brand.

Once a leader in the space, the chain is now experiencing a reversal in growth. Earnings are due out next week, and my models are calling for a “not so sweet” report.

CAKE: Analysts Not Feeling The Love 
Perhaps the most important factor in determining a company’s earnings outcome is how the analysts that follow the stock behave. When the majority of analysts lower their estimates ahead of a report, they’re often looking for increasingly weaker numbers (as we see in the agreement table below).

As you can see, CAKE has received significantly more downgrades than upgrades this quarter, with one analyst lowering his estimate within the past week. Estimates have been tumbling throughout the quarter, showing an increasingly bearish outlook as we approach CAKE’s earnings report, scheduled for Nov. 1.

This brings me to my next factors — timeliness and accuracy.

Analyst estimates often go without qualification. All the estimates are simply averaged together to create what’s called the consensus EPS estimate. It’s an effective way to incorporate all of the data into one easy number, but it leaves a lot more to the story.

What if one analyst has been more accurate than the others? Or if an analyst drops her estimate by a large amount just before earnings? Maybe she’s discovered some profound piece of data that could impact the company… and maybe we should then pay more attention to her estimate, rather than the average!



Zacks simplifies this process by releasing what they call ESP (earnings surprise prediction), which is used to determine the stocks that have the best chance to surprise with their next earnings announcement. In CAKE’s case, that number is -3.22%. Zacks is predicting earnings will miss by $0.02 per share.

My algorithm goes a bit deeper and gives more weight to analysts who have not only been correct in the past, but are also proactive in their updates.

Looking at the price chart below, you can see CAKE has been dropping since the end of Q1 2017.

The analyst from Goldman Sachs correctly called the drop and continued to update prices in a methodical, proactive way as shares fell further. Even when she thought the stock might not drop in the near term, she still maintained her “sell” rating and simply adjusted her target price so that it was more in line with where the stock was trading.

The analyst from The Maxim Group did the opposite. As CAKE started to drop, he upgraded his recommendation to a “buy” and has stubbornly kept his “buy” rating while shares have tanked. Although, judging by his falling price target, you can tell he’s finally starting to lose confidence.

Of these two, my system gives more credence to the earnings predictions made by the Goldman analyst than those made by the Maxim analyst, and those weightings go into my forecast. With 21 analysts covering CAKE, only five recommend it as a “buy.”

Using my algorithm, I forecast CAKE will miss EPS estimates by $0.03 and/or offer a weak outlook — both of which would send shares lower.

No Reason For Investors To Take Pity On Overvalued Stock 
The runaway market rally has pulled CAKE off its September lows and back above its 50-day moving average (MA) around $41.70. However, the stock’s 200-day MA (around $53.70) is still way above both current prices and the shorter-term average, which tells me this stock is still in a bearish trend.

Even though CAKE has been downgrading its outlook and is seeing negative same-store sales growth, it still trades at a very competitive valuation compared to its peers. The company’s price-to-earnings (P/E) ratio is much higher than restaurants companies like Brinker International (NYSE: EAT) and Bloomin’ Brands (NASDAQ: BLMN), which owns Outback Steakhouse.

These factors are important for the “reaction” portion of the equation. If CAKE were extremely cheap compared to its peers, investors might take pity on a poor report by justifying the stock as a value play.

But that’s simply not the case with Cheesecake Factory.

We all know that the restaurant industry is hurting, and things may get worse as Americans start signing up for healthcare starting Nov. 1. Consumer spending is already being partially blamed for the fast-casual dining drought, but a 40% to 57% increase in many healthcare plans could further tighten spending and sales in the industry.

I’m Predicting A Selloff 
Based on what I am seeing from analysts, industry trends and CAKE’s valuations, it seems probable that the company will miss earnings and move lower.

And while it’s true anything can happen — especially in this crazy market — all of the signs are pointing lower. The odds are in our favor.

Based on my models, I’m targeting an 8% move downward in CAKE shares to $40.90. But rather than short the stock, my Profit Amplifier readers and I will buy put options to turn an 8% downward move into a 30% gain.

If you’re not familiar with how options work, then that’s OK. All you need to know for now is that I like to think of this as like “raiding” the stock market — taking advantage of small price moves to take home more than our fair share of gains from a particular stock.

In fact, we make targeted trades like this all the time in my premium newsletter service, Profit Amplifier. We’re only going after the small, easy-to-capture, stock moves. We’re not swinging for the fences. Or taking big risks.

I’ve prepared a special report on this “raiding” technique, and it tells you everything you need to know about how this works. If you’d like to know how to turn moves of 6%, 7%, 8%… into gains of 60%, 70%, 80% or more… then simply follow this link.

Jared Levy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.



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Two Ways To Crush Your Next Earnings Trades

You can cash in on any company’s earnings report – good or bad – using two simple strategies.

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Originally Published at PowerProfitTrades

Only about 8.5% of the S&P 500 companies have reported third-quarter earnings so far. Of them, 74% beat their estimates, both on their top and bottom lines.

But in my 30 years of trading, I’ve seen plenty of instances like this where even after a good earnings report, the stock gets hammered by 10%, 15% – even 20% – in a single day.

And it happens because of bad guidance given by the Wall Street analysts.

Now they’ll try to tell you which way a stock will move before the announcement comes out…

But the truth is, they don’t know any more than your local mail carrier does.

The good news is… you don’t actually need to know.

You can cash in on any company’s earnings report – good or bad – using two simple strategies.

And both of them offer unlimited cash potential…


Unleash the Power of the Straddle and the Strangle – and Never Miss Out on Profits

Third-quarter (Q3) earnings season unofficially kicked off last Wednesday, with Alcoa Corporation (AA) reporting an earnings miss of $0.72 on a $3 billion revenue. Expectations were for $0.75 per share on a revenue of $3 billion, and revenue fell 43% from Q3 last year – despite it meeting expectations this year. That caused a a slight drop in the stock (from $37 per share to $36 per share), but it climbed back up to $38 per share (as of the time of writing).

Now you might think that an earnings miss would’ve affected this stock much more, but there were no real dramatice price move. Some stocks experience huge moves – for better or for worse – depending on the earnings report, analysts “guidance” about what to expect ahead of earnings, or a combination of both.

Take disk-drive maker, Seagate Technology plc (STX),for example…

STX crushed eps projections by $0.10, and the stock skyrocketed 12% or more on the pre-market open and pretty much stayed there for the rest of the day.

stx-stock-chart

If you were bullish and held STX over earnings, then you had a good day. If you were short, or were only holding long puts through earnings, you might be left wondering what you were thinking.

Now when companies release earnings information, it can trigger huge price explosions… up to 2,150% bigger than normal market moves.  And my colleague Chris is one of the few experts who can show you how to predict and profit from these price explosions. Click here to learn more. 

But there’s plenty of cases where stocks don’t fare well due to earnings, like Whirlpool Corporation (WHR), which reported an eps of $3.83 on a revenue of $5.4 billion. Consensus estimates were for  an eps of $3.90 on a $5.5 billion revenue.

Here’s what happened to the stock shortly after…

whr-stock-chart

Just off of a bad earnings announcement, the stock fell nearly 7% from its closing price of $182.50 to $170.50. So if you were bullish on WHR through earnings, you may be saying “ouch” right now (or another four-letter word). And if you were holding long puts, you probably captured some nice profits.

The bottom line here is… trading options through an earning report is a crapshoot. A company could get great press before an announcement but report worse than expected earnings, causing the stock to tank. Or, a company could get horrible press going into earnings but meet or beat expectations, causing the stock stock to skyrocket.

In both instances, poor guidance or off-the-mark predictions put you in position to take a huge loss – or miss out on huge profits.



So these are the best two strategies to ensure that never happens to you during earnings season

  1. The Straddle

What it is: An options trading strategy where you buy an at-the-money (ATM) call and an ATM put with the same strike prices and expiration dates – at the same time, on the same order ticketWhen to use: In high volatility and during earnings season

How to profit: When the stock (or other underlying security) moves either up or down

Maximum risk: The net debit paid (cost of both the call and put)

Maximum reward: Unlimited

Pre-earnings straddles: Exit before earnings come out

Post-earnings straddles: Exit within a few days after earnings come out

  1. Strangle

What it is: This is basically a cheaper alternative to the straddle, where you buy an out-of-the-money (OTM) put at a lower strike price and an OTM call at a higher strike price with the same expiration dates – at the same time, on the same order ticket.When to use: In high volatility

How to profit: When the stock (or other underlying security) moves either up or down

Maximum risk: The net debit paid (cost of both the call and put)

Maximum reward: Unlimited

In terms of trades through earnings, I’d consider options with expirations that are at least 30 to 60 days out. When it comes to exiting, I typically recommend in my premium service that members get out of their trades right before earnings announcements. That way, you’re in position to merely shave a few bucks off your profits than facing a larger than expected – and wanted – loss.

Good trading,

Tom Gentile


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