Earnings Drift Alert — Your Questions Answered

As I mentioned last week, we’re in for a bit of a quiet trading period as we wait for the right conditions to line up. Our next opportunity will be around October 13, when Delta Air Lines is scheduled to report its earnings.

This means we’re going to have to be patient for another week or so because I don’t want us trading just for the sake of trading. In order to capture the types of gains we saw in our extensive backtests, I’m watching for the same parameters to hit. It just means sitting on our hands for a bit.

In the meantime, though, I want to answer some questions you’ve sent me so that you’re confident using this system once the time comes. I’ve already received some good ones in the mailbag, so let’s jump into it today.

Frank G. writes:

Do you know how long the beta test will last?

My answer: At this moment, the beta test is running until at least the new year to capture this earnings season and part of the next. When we decide on the close, I’ll be sure to alert you. And don’t worry, I’ll be sure to manage any and all existing positions for you so that there won’t be any lingering questions about what to do after the beta test concludes.

Don E. asks:

How many trades does the system average per quarter?

My answer: So far, through the in-house test that we’ve been running since the start of the year, we have averaged 12 trades a quarter. That doesn’t mean our trades are spread out evenly, though. They can be lumped together or spread out. Since this system is based on a company’s quarterly earnings and how the stock reacts to those earnings, we have no control over the exact timing of our trade. Sometimes there will be lulls as we’re experiencing now. Some quarters could be quieter or busier than others. Just know that no matter how quiet a quarter is, we’ll never trade just to trade.

Edward F. asks:

In Precision Profits, you suggest using the same number of contracts [for each trade], which can be divided by two to sell half the position when a goal is reached. In the Earnings Drift Alert manual, you indicate using the same dollar amount for each trade. My question is: Do you want us to buy the same number of contracts for each trade or use the same dollar amount for this beta test?

My answer: I recommend owning contracts in multiples of two, since we will employ the same strategy of selling half a position when it’s up at least 50%. As for the dollar amount, try to keep it generally similar to the degree you can. The broader point is that because there are generally a dozen trades per quarter and some will certainly be losers, I’d rather see investors place a smaller amount of money on each trade so that you maintain a war chest to draw on when the trades arise.

Meanwhile, for anyone who hasn’t yet, please read the trading manual. That way, you’ll be comfortable making the first trade once it hits in the upcoming weeks. You can access it here.

Mark M. writes:

I understand it is always up to the customer to participate or not. However, to get the full benefit (our side and yours), would you recommend participating in all recommendations?

My answer: Yes, I would recommend participating in all of them. To get the same results as we did in our backtest and paper trades, I recommend that you make all trades you’re able to make. You would hate to cherry-pick trades only to miss out potentially on some of our largest gains.

John S. asks:

I’m just wondering if I will need an overseas broker or will these trades be primarily domestic? I am currently with Fidelity. I’m very excited to take this opportunity to learn and grow my investments.

My answer: Nope, you won’t be needing an overseas broker. All of these trades will be U.S.-based, and any broker that offers options trading will be able to place these trades. Fidelity will get the job done. Every stock in our Earnings Drift Alertdatabase is a member of the S&P 500 or the Nasdaq 100 — basically America’s largest stocks.

That’s it for this week. Thank you for reaching out to me with your comments and questions. Should you have any more, you can always reach me atearningsdrift@sovereignsociety.com.

Until next time, good trading…

Jeff Opdyke
Editor, Earnings Drift Alert