Justin’s note: Regular readers know I pass along great opportunities when I see them. Today’s essay is no exception.
With earnings season right around the corner, master trader Jeff Clark says there’s a ton of money to be made using his proprietary system. Read on to learn how he’s making a fortune for his readers…
By Jeff Clark, editor, Delta Report
Trading a stock around its earnings report is like gambling.
It’s exciting. It’s fast action. And if you get the direction right, you can make a lot of money.
But if you get it wrong, then you can kiss your hard-earned bucks goodbye.
For the first 20 years of my career trading options, I loved to trade around earnings announcements. It was fast. It was exciting.
But when I finally took an honest look at the results of my earnings trades, I found it wasn’t very profitable.
Oh, sure, I had some big winners—trades that made me 300% or more on my money in just a few days. But I had plenty of trades where I lost 100% overnight, too.
After adding all of these trades together—more than 200 trades over 20 years—it turned out I was barely breaking even. It certainly wasn’t worth the time and effort it took to research all the ideas and put all the trading strategies together.
So I swore off earnings trades. As much as I enjoyed the action, I couldn’t justify putting in the effort for results that barely broke even.
But in the back of my head, I always thought, “There must be some way to make this work.”
For almost 10 years, I mostly watched the earnings action from the sidelines. Companies would report their numbers. The stocks would make a big move, either higher or lower. And I’d wonder if I would have gotten the direction right if I traded it.
It was painful to stay on the sidelines, thinking about how much money I could have made if I had been on the right side of those moves.
But in the few times during that period that I did dip my toe back into the earnings trading pool, the results were mixed, just like before.
About five years ago, though, I decided to make a concentrated effort to determine if there was a way to get the direction right. Was the market sending clues that I wasn’t seeing? Could I put together a formula… an algorithm that would tell me—ahead of time—the most probable direction for a stock after its earnings announcement?
For four years, I watched the companies of the S&P 500 as they traded around their earnings reports. I noted the volume, the consistency of the moves, the average percentage gain or loss, the option volume in the days before the announcement, the price of the options, the variation to historical premiums, and a whole host of other variables.
Throughout that time, I logged all of that information onto 17 different spreadsheets. Each spreadsheet contains the data for each of the variables. That data helps to determine how important each variable is in predicting the stock’s movement after an earnings announcement.
I then put all of those variables and percentages together and came up with an algorithm for an earnings trading system.
I started trading the system with my own money in April 2016. By April 2017, the system generated 35 total trades. Thirty-two of those trades were profitable. A $1,000 investment in each of those trades created profits of $17,547.
So in May of last year, I started sharing these trades with my Delta Report subscribers.
We’ve executed 11 trades so far. Ten of them have been profitable—including an 80% gain in one day on Toll Brothers (TOL), a 100% gain in one day on Guess (GES), another 80% one-day gain on Oracle (ORCL), and a 53% gain on our most recent trade in Cisco Systems (CSCO).
It’s that trade in CSCO that has me quite excited about the potential for this upcoming earnings season.
You see, on average, the system generates about two or three earnings trades each month. Sometimes more, sometimes less, but on average about two or three. But for the past quarter, the system has been inactive. It only generated one valid trade setup (the CSCO trade).
So I started tinkering with the system. I tweaked some of the conditions it uses to generate trades just to see if it would create more activity.
It did… but not in a good way.
By adjusting some of the parameters, my earnings system would have generated seven trade recommendations this quarter. But only two of them would have been profitable. In other words, the win rate would have dropped from its current level, 90%, down to less than 30%.
Frankly, I’d rather have one trade with a 90% probability for profit than have seven trades and lose money on five of them.
So I’ve gone back to the original system parameters.
This exercise did, however, reinforce the primary purpose of the system—to generate earnings trades with a high probability for profit. Most trade setups this quarter were low-probability trades. They would have been unprofitable. And the system kept us out of those trades.
Looking forward into next quarter… I suspect that just as periods of low volatility in the stock market are always followed by periods of high volatility (and vice versa), periods of inactivity in my earnings trading system are going to be followed by periods with lots of activity.
And if the system performs as it has before, it should be a profitable quarter.
Best regards and good trading,
Editor, Delta Report
P.S. Big money management firms have been beating down my door for years, begging and bribing me to use my system for themselves.
But my answer is always “no.” I didn’t create this system for them… It’s for my readers. I want them to be able to profit on earnings announcements in a way most other traders simply can’t.
Like many things, it’s a constant work in progress… But it’s something that my subscribers are already profiting from.
If you’d like to join them, click here.
Today, high praise for Doug Casey:
I always read anything by Doug Casey that shows up in my inbox, particularly via International Man. It is unmistakable that his primary objective is to help his fellow men better themselves. I am grateful for the opportunity to learn in this way.
And lots of feedback on our recent Dispatch, “A ‘Chain Reaction’ Will Begin Soon… Here’s How to Prepare”…
Okay, here you go again, shouting from the rooftops and telling us all to hold more cash and more physical gold. At the same time, you just sold a lot of subscriptions to Casey’s Big Speculation and marijuana. Blah, blah, blah. You guys are worse than CNBC. At least they have a few experts.
Those who favor Mr. Trump's tariffs need to remember who is going to pay them. You and I will pay more each time we buy something imported, or something that uses imported materials. It is just another government tax on us all.
I read your Casey piece tonight, and I think you are a mouthpiece for the corporatists in this country. Trump is doing exactly what he campaigned on. What a breath of fresh air! Something has to be done about the trade imbalance and the loss of jobs in this country. It's not a sustainable path. I'm willing to accept some short-term pain to get this trade imbalance problem fixed. The "swamp" has had control of Washington for too long!
I want this trade war. I’m holding TWM calls. This market has been fake and manipulated for too long. Tesla at around $300 per share with no earnings! Amazon with a price-to-earnings (P/E) ratio over 300. Netflix with a P/E ratio over 200. Let this fake market crash and reset to fair value!
So you think China will put up obstacles to imports of soybeans? You seem to know very little about the global soybean market. If China puts a tariff on US soybeans, Brazilian and Argentine soybeans will have an advantage, and their prices will go up. What do other traditional buyers of South American beans do when their supply shrinks? They will have to buy from the US. China is an importer of almost 100 million tons of soybeans per year. Do you think they will want to raise the prices on themselves? Hardly.
With a trade surplus of $300 billion with the US, China will tread carefully before engaging in a trade war. They have a lot to lose. Mr. Xi talks the good talk on free global trade, but his actions say exactly the opposite. The legitimacy of China's dictatorship rests on continued wealth creation for its citizens. It will be a fine balancing act for the leadership. On one hand, they cannot appear to be weak, but on the other hand, a recession could spell disaster for the regime. I hope Mr. Trump plays his strong hand well, but I am not so sure he will. He has this habit of snatching disaster from the jaws of victory.
Please consider one thing. Who is the customer and who is the business? A business cannot keep a customer from buying. They simply can buy somewhere else. Customers can shut the doors of a business. The US is the customer. China is the business.
There is a religion going on about trade. I’m not sure what else to refer to it as. A plus B equals C. Please consider the context of the situation. And even if the worst happens, so what? It’s a death march the way it is now for the working class. Maybe I’m alone here, but when I get beaten daily, I eventually stand up and face the music. A slow death is for cowards and/or selfish folks who have little concern for Main Street.
I mean no disrespect. I’m only attempting to shed the light on what I see as the best choice in the big picture. America can live on, but without industry, it is a beached whale when, and if, a reset does happen to a gold-backed currency. Without industry, there is no chance for the US. Thanks for listening to my thoughts. Have a good day! And I do enjoy being a member!
Hello Justin. As I understand from many reputable/knowledgeable sources regarding gold, we can't go back to the gold standard. I, too, believe that train has left the station. Therefore, I am curious: What makes gold valuable in your estimation?
I enjoy your perspectives. As far as the response from a Trump supporter, how can one possibly not separate politics from economics and one’s overall well-being?! As a retired educator/school administrator, I am astounded by the lack of critical thinking or just plain "common sense thinking" that millions of Americans choose to exercise. Scary times! However, this too shall pass, and maybe this reckless leadership is exactly what is needed to wake a lot of folks up. Pain can be a great teacher. Unfortunately, some need a heck of a lot more than others.
Glad you are not afraid to say what you feel is right and that you can back it up with facts and a reasonable argument. We all do not have to agree with one another, but it sure does help when you can listen to another person's perspective. Thanks again for putting your perspective "out there!"
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