3 Options Trades For The Hottest Stocks On The Street

| January 31, 2020

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Compelling setups beckon for BA, NFLX and AMD

Earnings season is drawing to a close, and I’m finding it much easier to discover trade ideas for individual stocks. Today we’ll look at three of the best post-earnings setups and build-out options trades to capitalize on.

Nothing ignites volatility quite like an earnings announcement, and these quarterly rituals are obsessed over by individuals and institutions for their profit giving (and stealing!) potential. Companies that reveal underwhelming sales are punished, while those that over-deliver are gifted with instant gains. The extreme binary nature of each report makes it risky for short-term traders to hold positions into the event. But afterward? It’s game on!

The heavy volume and excessive price swings following earnings create compelling short-term opportunities for those looking to bank on either strong follow-through or a resumption of whatever trend was in place before the event.

That said, this trio is flashing low-risk entries worth pursuing. So, let’s take a closer look.

Options Trades for Hot Stocks: Advanced Micro Devices (AMD)

AMD Chart

Click to Enlarge / Source: The thinkorswim® platform from TD Ameritrade

Spectators have been begging for a pullback in Advanced Micro Devices (NASDAQ:AMD). Its meteoric ascent provided one buyable dip in December, but outside of that, low-risk entries have been a rarity; And that is why traders are welcoming Wednesday’s whack. The post-earnings plunge sent AMD stock down as much as 8.7% before buyers finally emerged. From last week’s peak to its current price, the stock has suffered a 10.5% haircut.

Rather than betting this is the end of the trend, I suggest giving the uptrend the benefit of the doubt. This dip is likely a gift like all of its predecessors.

Additionally, the lower price tag and higher volatility of AMD stock make it a great naked put candidate. If you’re willing to bet it sits north of $40 at March expiration, then short puts in that area make sense.

The Options Trade: Sell the March $41 puts for around $1.00

Netflix (NFLX)

NFLX Chart

Click to Enlarge / Source: The thinkorswim® platform from TD Ameritrade

The knee-jerk reaction to Netflix (NASDAQ:NFLXearnings was lower. But it was a rare ruse, a trap suckering in sellers stuck on the narrative that Disney + and other competitors were going to stunt Netflix’s growth potential. Not one day later, bulls emerged to jam NFLX to a fresh six-month high.

The volume surge should embolden buyers because it provides proof that institutions are backing the breakout. NFLX is now four days into a bull flag pattern that offers a tempting entry point for those banking on the uptrend continuing.

Implied volatility is down dramatically now that the earnings uncertainty has fully unwound. And that makes bull call spreads an exciting options trades idea.

The Options Trade: Buy the March $350/$360 bull call spread for $4.30

Boeing (BA)

BA Chart

Click to Enlarge / Source: The thinkorswim® platform from TD Ameritrade

Shareholders hoping for a bailout faced disappointment over Boeing‘s (NYSE:BAearnings report. There weren’t any rosy numbers to cling to, and no evidence of a shift in its deteriorating fundamental story. And so, the stock reaction was muted. The overall posture of its trend remains the same, though: bearish with a dash of increased volatility.

If anything, the past week of rallying has created a nice bear retracement pattern to launch new trades from. The break of $325 support saw abnormally high volume, suggesting real panic in the streets. We’ve now returned to the scene of the crime, and if the principle of polarity holds true, old support will become new resistance. Thursday morning’s strength is holding bears at bay, but if we break Wednesday’s low ($319.14), then short trades are a go.

The post-earnings volatility crush is making option premiums much cheaper. And with that, bear put spreads are the way to go.

The Options Trade: Buy the March $320/$310 bear put spread for around $4.00 if we take out Wednesday’s low.

As of this writing, Tyler Craig held bullish positions in AMD.


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Category: Options Trading Strategies

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