A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.
As we continue to move closer to Earnings Season, I wanted to focus on another type of earnings move you can play. We’ve discussed before how there are 3 different ways to trade Earnings Season: “the run into earnings,” the actual report, and the move after the report.
Today’s focus is going to be on the move after the report.
Specifically in the cloud communications platform, Twilio (TWLO)…
This is another classic case of a favorite setup of mine: the high short interest momentum setup. Which I taught in my “Short Interest Secrets” course here. When you have a ticker that has a lot of high short interest (and it’s near previous highs), it’s good to look at it for an earnings explosion candidate. That’s exactly what I did here.
Now for an earnings explosion candidate, as I’ve said, you can either trade the run into earnings, the actual report, or the move after the report.
An After the Report Momentum Move:
I went with option 3.
As you can see on the chart below, this move exploded overnight and at market open it was up 35%…
And now that we see it gaped up, what next?
I bought it on the 15 minute range on the chart above, and it continued to trade higher, higher, and higher… until it lost momentum. And what do we do at that point? We exit quickly for a nice daytrade.
I got in for $2.85 and closed for $4.95…
So I made about $2 in the options market in less than 30 minutes.
Fun Fact: You could’ve played this as a swing trade as well, but I wanted to make sure to just get in and get out, as a quick daytrade. Personally, that’s how I like to play these quick after the report momentum moves — as daytrades.
Now what creates these after the report momentum moves?
Typically when a ticker gaps up and has high short interest, it typically makes a continuation move. Why does it do that? Because you have a lot of short sellers in the name and they’re covering. When people are short (and there’s a lot of people short), and they wake up and the stock’s up almost 40%… it’s a total nightmare for them. So they start exiting their positions, and to do that they buy the cover.
When they do that… price goes up, the news catches on, and other people want to jump in on it because it’s being talked about.
So next time you see a ticker skyrocket after its report — study my “Short Interest Secrets” strategy, and catch that after report move with me! Just like this one, which I took in my Stacked Profits Mastery Program, there’s sure to be more this next time around.
Thanks, very clear explanation.