It is well known that many stocks follow patterns. These patterns become all the more evident in the days and weeks before they release earnings. If a stock exhibits a certain type of behavior before the earnings release, does it really matter why?
Let’s take Microsoft (Ticker: MSFT) for example.
Take a look at this chart:
You will notice that there tends to be a repeating behavior running up to earnings. MSFT goes up before earnings. In fact, buying calls one week before the report has been profitable 11 out of the last 12 times. I want to take advantage of this behavior.
You may want to consider the October 26th weekly expiration 114/115 call spread, buying it for $0.30. Your maximum risk is what you paid for the spread and your maximum reward is the width of the spread less any premium paid. Max risk = $0.30, max reward = $0.70. This yields a risk to reward ratio of 2.33:1.
Here’s a quick video of our discussion this morning:
