Managing Our Qualcomm Call Options
Editor’s Note: Next week is Thanksgiving. Our offices will be closed to give our team some well-deserved time off. We will not be publishing the Weekly Options Corner next week. But be on the lookout for a holiday card from the American Investor Today team, plus a list of things we’re grateful for.
What are you grateful for this year? Email us at WeeklyOptionsCorner@BanyanHill.com for a chance to be featured in an upcoming issue. — Annie Stevenson, Managing Editor, Weekly Options Corner
Jumping into the trade may be the easiest part of trading.
The hard part?
Knowing when to get out…
We stuck to the strategy of jumping in after a company announces earnings. This event is what I like to call my Profit Trigger.
It’s the signal I wait for before opening a new trade.
And the historical performance of the company also tells me what to expect and how to manage the trade once we’ve jumped in.
The bottom line: It’s all about the mispricing…
The Market Is Still Behind on Qualcomm
After analysts take a moment to digest the chaos that unwinds with an earnings announcement, they don’t immediately reflect the good news in the stock’s price.
Stocks can jump 5% or 10% in a single day after an earnings announcement. But even then, analysts may not have caught up to the mispricing.
While many investors think those quick one-day gains are their only opportunity to profit from an earnings announcement, the Quick Hit Profits strategy proves that isn’t the case.
I’ve analyzed each stock on my watch list to find out how long a mispricing takes to correct itself after earnings. And the answer is that the stock usually continues to climb over the next two months.
This means in Quick Hit Profits, we don’t have to panic over every twist and turn in the options price.
And that came in handy with our Qualcomm calls.
Learn How to Handle Options
Right now, the position is up nearly 50% since we recommended it.
But it’s been a wild ride over these first two weeks. And if you’re new to the strategy we use, that’s great experience for you.
The truth is, we don’t always see the option shoot straight up and hand us a big gain right away.
This shows the true volatility of options. It’s a great teaching moment.
If you can’t stomach the 20% to 50% one-day price swings, then trading options may not be for you — at least not yet.
You’re seeing, firsthand, the volatility (to the downside, but also to the upside) that options can throw at us.
With our Qualcomm position, you’ll notice that we didn’t panic as the option fell in value just one day into the trade. With our strategy in Quick Hit Profits, we held on. As much as we were down early on, we’re now up … just as quickly.
If you don’t have a strategy that tells you when to exit, you could be stuck panicking at every little drop the option goes through.
Luckily for you, we know when to look for the exits. In Quick Hit Profits, I lay out when and how to exit a trade when I make a recommendation. I’ll be keeping my eyes on this Qualcomm trade and update you here every week. When it’s time to close this trade, I’ll let you know in the Weekly Options Corner.
But today, the Qualcomm mispricing still has time to play out.
In Quick Hit Profits, we’re in and out between earnings announcements, capturing quick double-digit and triple-digit gains practically every month.
If you want more opportunities like Qualcomm, and more potential triple-digit opportunities, then click here to learn about a special offer only for Weekly Options Corner readers.
We’ll be back after the holiday with more options education.
Chad Shoop, CMT
Editor, Quick Hit Profits
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.