Trade Detail: A 108% Gain on CSCO
This week, I’m breaking down a recent triple-digit gain my Quick Hit Profits subscribers bagged using a simple approach.
It’s a strategy that gave us 13 triple-digit gains in 2020 alone, averaging about one every month.
I’d like to take a look at some of these to learn what went right, and what we can expect from the next big winner.
So today, I want to show you our call options on tech giant Cisco Systems (Nasdaq: CSCO).
We added it back in November after the company’s earnings announcement. But before we break down what happened with this trade, let’s run through a quick recap on my strategy.
Trading Earnings the Right Way
I don’t gamble on earnings.
Instead, I track companies with a history of being mispriced after the big announcement. Mispricings only become obvious after earnings are announced. And a stock can be mispriced for up to two months as Wall Street races to catch up to the data dump from earnings.
See, when you realize that, you can look for mispricings — where the stock market is offering up a business at a bargain price — and you can take advantage of them.
So, I created a list of 75 stocks that have clear opportunities once they hit my Profit Trigger. This is when a company beats earnings expectations and the stock jumps on the news.
Then I know whether we can expect that trend to continue or fade out.
It’s how you can trade earnings the right way — without gambling.
Cisco’s 108% Gain
On November 13, Cisco reported its quarterly results for the second quarter. Even though the company faced weakness in network product sales, that was offset by its services and security revenue segments.
That pushed the company to post better-than-expected earnings results, which is the first part of my Profit Trigger.
The second part is: How did the market react?
And in this case, investors loved seeing the company beat expectations in the weak market affected by the pandemic, and sent the stock up more than 5% on the news.
Right away, I knew this was a stock we wanted to buy call options on.
Cisco had hit my Profit Trigger seven times since 2006. And every single time, the stock headed higher over the two months to follow.
And it was no surprise when the stock handed us a triple-digit gain on the second half of the trade on December 22 — just over a month later.
But it’s what happened during the first week of the trade that I want to walk you through today.
Ride Out the Ups and Downs
You see, we jumped in the day the company announced earnings. After climbing 5%, the stock jumped higher the next day as well. So, we were off to a great start.
But then the pullback happened…
Over the next four days, the stock dropped more than 4%.
It would have been easy to toss in the towel and bail on this trade. But we stuck with it. We knew the expected move could take up to two months to play out.
Knowing this kept us in this trade to reap the benefits when it handed us a 108% gain.
Take a look:
The Power of the Profit Trigger
Had I not done the thorough research to know what happens when a stock hits my Profit Trigger, I, too, might have panicked and exited this trade.
But trusting my strategy — and its profitable track record — meant not worrying when the stock pulled back. Because my Profit Trigger told me this trend would take more than five days out of the two months we could wait for it to play out.
And by allowing the stock to ride the ups and downs of the market, we bagged a nice triple-digit gain.
That’s the power in my Profit Trigger. And in a few days, I’m dropping a presentation that reveals all the details on what I’m calling my “Ultimate Trading Strategy.”
We have broken down a lot of the details here in Weekly Options Corner, but this presentation shows you more details and more examples of just how powerful the Profit Trigger really is.
I know you won’t want to miss it.
You can sign up here to be one of the first to view this presentation as soon as it is available. It’s only a few days away.
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.