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The No-Brainer Secret To Weekly Income

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I want to let you in on a secret…

Wall Street doesn’t make most of its money from the stock market.

While trading equities constitute a large part of “big banking,” if you were to add the value of all the stocks in the world it would only come out $36.6 trillion.

Don’t get me wrong, that’s a big number. It’s also one reason brokerage commissions have been the bread and butter of Wall Street firms since the New York Stock Exchange was founded in 1817.

But the truth is there’s a much bigger market out there. This market, which is valued at over $790 trillion, has grown exponentially since the Securities and Exchange Commission deregulated it in the 1990s.

Unlike most stocks and bonds, which tend to be “boring” and relatively stable, the securities in this market allow investors to make bets on the outcome of certain asset prices.

You wouldn’t believe the kinds of insane bets we’ve seen traders make in this market. I’m talking about, in some cases, traders betting upwards of $55,000 that Apple or Google will trade 20% higher than where they are now in a matter of two months.

If they’re right, those investments could be worth millions of dollars. But odds are they’ll be wrong. While not impossible, it’s highly doubtful that two blue-chip stocks with market caps in excess of $100 billion will make a 20%-plus move in two months.

The far more likely scenario is that the securities those investors bought will expire worthless, and the money they spent to make these bets will go straight into the banker’s pockets. This process happens every day, and it’s one of the primary methods Wall Street uses to extract huge profits from some of its most aggressive clients.

But the best part about this market is that it’s open to everybody. You don’t have to be a multi-million-dollar hedge fund manager or a Wall Street guru to take advantage of it. All you need is a brokerage account and a few thousand dollars to get started.

Derivatives: Not As Complicated As They Seem…
I’m talking about derivatives — one of the most misunderstood markets in the financial community. Now, before you dismiss derivatives offhand, bear with me. It’s important to understand what they are, how they work — and more importantly, how they can work in your favor.

While derivatives might sound complicated, they’re really quite simple.By definition, a derivative is any security that derives its value from the performance of another underlying asset (such as a stock, bond or commodity). The value of the derivative depends on whether the underlying asset goes up or down in price.

In other words, buying a derivative is like betting on the price movement of an asset. How much the bet costs, and how much it could potentially be worth, depends on the type of derivative that the buyer purchases.

So while derivatives might come with fancy names like “swaps,” “options” and “futures,” in reality they are often used like lottery tickets by speculators — whose winnings depend on whether or not the investor correctly guessed the direction of the asset price’s movement.

At this point I want to make something perfectly clear. We don’t recommend you make these speculative bets yourself. As we said, most investors who buy derivatives are aggressive traders willing to risk a small portion of their portfolio for the chance to earn huge profits.

That’s not how we like to invest here at StreetAuthority.

Instead, we prefer to be on the other side of the trade. That is, we prefer to sell derivatives instead of buying them.

After all, much like a state gaming board gets to keep the money for all the losing lottery tickets, derivative sellers keep the profits from each contract that expires worthless, which happens the majority of the time.

Specifically, one of our favorite derivative strategies involves selling covered call options.

How Covered Calls Can Help You “Skim” Extra Income
Longtime readers have likely heard us talk about covered calls before. Those who are familiar know that a covered call strategy involves selling options (a type of derivative) on stocks that you already own.

To see how it works, consider the world’s largest silver streaming company, Wheaton Precious Metals Corp. (NYSE: WPM).

Because precious metals companies tend to be volatile, many growth investors like Wheaton Precious Metals because it offers the chance to earn big gains. But the really aggressive investors, the ones that place million-dollar bets in the derivatives markets, like Wheaton because it commands some of the highest options premiums.

Right now, shares of Silver Wheaton are trading at around $20.78. Meanwhile, December calls with a $23 strike price are trading at around $0.60 per contract (an options contract controls 100 shares of the underlying stock). That means investors are willing to “bet” $0.60 (per contract) that Wheaton will be trading above $23 when the option expires on December 15.

That means shares would need to be trading above $23.60 for the bet to be profitable ($23 plus the $0.60 the trader paid to make the bet). That means shares would have to rise to $23.60 from $20.78 in 126 days — a 13.6% gain, which may or may not happen.

But here’s where things get interesting…

Regardless of where the stock is at when the option expires, whoever sold the option to this speculative trader will get to keep the $0.60 premium as pure profit.
So, by taking the other side of this trade, you’re getting paid up front to possibly sell your shares in the future at $23. That’s a 10.7% gain from the stock’s recent price. In addition, you will have already pocketed his “bet” of $0.60 per 100 shares (or $60) — leading to a 13.6% total profit.

In this example, that means the worst thing that could happen is that you’re forced to sell your shares of Silver Wheaton at $23 apiece. But as long as you bought the shares for less than that, you’re making money.

It’s this kind of “win-win” strategy that makes the derivative markets so lucrative. Thanks to options-selling strategies like covered calls, investors are able to take advantage of the aggressive bets traders are making.

We like to think of it as “skimming” from the stock market.

Of course, a covered call strategy only works if you own the underlying shares of the stock (that’s what the “covered” part means). So if you don’t already own shares of Wheaton, or have any interest in owning them, then this trade might not make sense to you.

But remember this is just one example. The truth is, as long as the stocks you own are publicly traded, there’s a good chance that at least one aggressive investor is willing to make a wild bet on them. Why not take them up on it to earn a little extra income?

Make no mistake. The derivatives market is like a giant casino. There are thousands of investors making poor, speculative bets every day. But when you use that to your advantage with conservative strategies like covered calls, you can align yourself with the house.

And the house almost always wins.

If you want to learn more about covered calls, ProfitableTrading’s Amber Hestla has just released a brand new research report where she explains how investors are earning up $3,000 a week by utilizing this simple strategy. To learn the details of how Amber and her readers make these conservative income trades, follow this link.

Brad Briggs 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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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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