This Tuesday, we made our first Earnings Drift Alert trade, and now, two days later, we’re grabbing a nice 50% gain.
As you might remember from yesterday’s note, we adjusted our limit orders to sell half the Netflix (Nasdaq: NFLX) calls at whatever price nets us a 50% gain. While I asked you to choose an exit price that would net you a 50% profit based on your individual entry prices, we still needed an official portfolio price. So we adjusted ours to $6 based on our entry price of $3.98.
And that mark was hit today! We captured a 50% return on half of our position.
If your sell orders weren’t triggered, I recommend selling half of your position at the market. It should hand you a roughly 50% gain. Hopefully, most of your orders were hit already though — prices jumped to as much as $6.50 this morning.
Now, since earnings-based positions can be volatile, I like to put a shorter leash on these types of trades. So as part of this strategy, we’ll typically add a stop-loss order on the second half of a position after we collect a 50% profit from the first half. In this case, the stop-loss will allow us to secure at least a 10% gain on our remaining calls. This way, if the market reverses its rally for whatever reason, we’ll still capture an overall gain.
With that in mind, let’s place our 10% stop-loss order on the remaining position. Remember, this is based on our official entry price. Just be sure to use a stop-loss order. Otherwise your trade could be triggered right away.
|Action to Take|
|Sell Action to Take|
|Stock:||Netflix Inc. (NFLX)|
|Option Type:||Call Option|
|Action:||Sell to Close|
|Order Type:||Stop-Loss Order|
|Duration:||GTC (Good ‘Til Canceled)|
|Trade Deadline:||Keep this order open until it is filled or canceled.|
Keep in mind that we will keep adjusting this stop-loss higher as our profits grow. In other words, if we’re up 100%, we’ll tighten our stop-loss to preserve more than a 10% gain — perhaps 50% or 75% based on the volatility of the position.
Trades on Our Radar
Before I sign off, I have another quick trade update for you: Last week, I mentioned we could be entering a busy trading period, and things are already starting to ramp up. Aside from Netflix, United Rentals Inc. also met our parameters in the wake of its earnings report.
However, we won’t be entering this trade for a couple more weeks. In the meantime, we’ll be watching the company closely, and when it’s time to send you the recommendation we’ll email you a note titled “Trade Alert.” More than two dozen opportunities are lining up in the week ahead, so remember to pay close attention to your inbox. I’ll be sure to keep you updated on what’s happening.
I know that many of you are asking about a text-messaging service to alert you to these trades, but unfortunately we aren’t able to offer one with this beta test. Just keep an eye on your emails so you can get a jump on our trades, and when this service launches in full next year, we’ll look to add the text-messaging service for you.
Until next time, good trading…
Editor, Earnings Drift Alert