How To Play Amazon And Apple Earnings

We've seen some big moves on some of the biggest names in the S&P 500 over the past few days, and even at this point in the week, it's nowhere near over. A third of the S&P 500 has reported or will report this week.

In fact, it's not out of the question to think this could shape the direction of the market in the short term – and even a short-term direction couldn't hurt. At midday Wednesday, the S&P 500 and NASDAQ were heading up, and the Dow was down slightly.

We saw Tesla Inc. (NASDAQ: TSLA) sink after reporting record net income and revenue surges. Same deal with Microsoft Corp. (NASDAQ: MSFT); its shares are down as I write this at midday Wednesday.

In fact, and as we expected, the news has been overwhelmingly positive in the earnings department. Around 84% of companies that have already reported have produced positive earnings per share (EPS) surprises, and, as of Wednesday, 77% had beaten on revenue.

But unless you know how to play it, an earnings beat doesn't necessarily add up to instant, monster profits. I'll tell you why in a second when I show you how to play what could be the biggest movers of all this week.

Here's Why Stocks Move Like They Do After Earnings

Take companies like Microsoft or Tesla – quality companies with objectively positive earnings news. Why did they sink immediately after? Why do some other stocks go up after positive news?

It's an old story: Traders are just selling the news. They rode the stocks up ahead of earnings and cashed out when they felt like the short-term profits were as high as they could get.

But also, you've got a big class of very savvy traders who are trading the big spikes in implied volatility (IV), which, as you can see here, really just spike in demand for options. 

That's why options trading in and around earnings season can, unless you time it perfectly, end up being an expensive mistake – even if you're actually right and think you're well-positioned for the ultimate direction of the stock.

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Disclaimer: Any performance results described herein are not based on actual trading of securities but are instead based on a hypothetical trading account which entered and exited the suggested ...

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