Hey 5-Star Trader,
As we approach April, pre-earnings trades will continue to be my primary focus. We have entered the “Hot Zone” in many primary technology tickers, including Microsoft (MSFT), Apple (AAPL), and Facebook (FB) as I discussed in Tuesday’s webinar. Next week, traders should be on the lookout for companies reporting at the end of April and early May.
Large-cap technology stocks tend to get a lot of attention around earnings, and rightly so. They are typically the companies that demonstrate consistent quarter-over-quarter and year-over-year growth with a relatively consistent theme. I also love to look at more volatile industry groups, such as cybersecurity stocks.
Cybersecurity stocks can get a bad reputation due to their volatility, the fact that they are typically newer companies with less history, and a lack of consistent EPS and revenue numbers. However, this is also why I love them.
Think about what companies like Apple looked like 15 years ago. Now, I know that seems like quite a ways in the past, but I’m eyeing cybersecurity companies as the next big, up-and-coming technology space in the market. So, while these stocks are volatile, I still like them as long-term investments (with patience!) and I also like to trade them in the options market.
Remember, volatility – if you can stomach it – is great when trading options! The key here is finding a specific pattern to trade.
Let’s take a look at Cloudflare (NET) in the Hot Zone.
A couple of observations:
- Cloudflare will be entering the 21-bar, pre-earnings time frame on April 4.
- Historically, over the past two years, NET has traded higher – on average 16.67% higher in the 21-bar time frame – which equals about $21.67 at current prices.
- Out of the last six quarters, there was one quarter (Q1 in 2021) in which the ticker did not see a Run into Earnings, and the pattern didn’t come through.
- Last quarter, even with the stock down on recent lows, it still experienced a Run into Earnings.
Based on these observations, I like NET for a potential long trade going into earnings. However, I will note that at current prices it is right up against technical resistance at the 200 simple moving average, at $130 a share. This is a key zone that I’m eyeing. If NET can break this level, I think it can see a nice trade higher going into the report. If not, there may not be enough momentum to get it through resistance.
Want to learn more?
If you want to learn more about why I’m eyeing these setups, how they work, and some of my other favorites, check out my free webinar from Tuesday, “Critical Must-Know Options Opportunities.”
Be on the lookout for next Tuesday’s newsletter, where I’ll dive deeper into upcoming earnings opportunities, as we kick off the April trade!
Thank you and good trading!