Two days ago I wrote an article that discussed buying a Netflix (NFLX) strangle (call and put) for their earnings report. I believed that NFLX had a good shot at moving more than the expected amount. In the end, NFLX ended up rallying over 15% and made the trade very profitable. The call made around 700%, and if you subtract the loss of the put, the overall profitability on the trade was 600%.
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The reason playing earnings can be so profitable; especially when you buy OTM, is that you do not have to be right every time to be successful. Right now, if I were to lose on my next 6 earnings trades, I would still be able to break even. The trick is to bet a similar amount per trade so that you are not too leveraged on one particular trade.
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