Hey 5-Star Trader,
“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, here you’ll get a trade from my trading journal, in which I explain my 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.
For this “Tuesday Trade,” I want to outline my trade in Cloudflare (NET).
As some of you may know, my husband works with me at Simpler Trading as a technical support specialist! Though my technological skills will never compare to his, over the last few years, he has really shown me the importance of cyber security. Especially as technology gets more complex, the need for cyber security grows along with it. This is the reason why I like to keep my eye on tickers that are within the cyber security sector, and NET is one of my favorites among the bunch.
Earlier this month, NET was set to report its earnings for the first time in 2022. Despite the crazy market volatility leading up to this event, I knew I wanted to get in on some of the action. So on Feb. 10, I sold one iron condor to open an overnight earnings trade — SELL -1 IRON CONDOR NET 100 (Weeklys) 11 FEB 22 115/130/115/100 CALL/PUT @10.60 limit order (LMT).
My Risk To Reward…
All moves for this trade would happen overnight, so I would not have the ability to take a stop. Therefore, this trade was definitely risky.
While it might seem random that I chose to trade this report on Feb. 10, it was actually for a very specific reason. Feb. 10 was a Thursday, so my idea here was to open this contract on a Thursday into Friday to get the best overnight implied volatility (IV) crush. The IV was at 257% here, which is massive! This was a move I definitely wanted to take advantage of during earnings.
NET In The Hot Zone…
When it comes to analyzing earnings reports, I always look to my favorite earnings tool – the Earnings Hot Zone. This tool gives me critical stats that I need to trade pre-earnings, earnings, and post-earnings moves. The data demonstrates how often the company beats and misses expectations, by how much, and which direction they normally gap. All this gives me targets for earnings moves, and more!
Below is a picture of NET in the Hot Zone.
You can see that NET had a $15 money maker move (MMM). Last quarter, NET made a big move like this, so I figured it could happen again this quarter. If this was the case, my iron condor wouldn’t work how I wanted. But, we were in a nice range on this stock so I decided to go for it anyway.
The Next Day…
Right at the market open, I went in to check on my NET trade. I saw that price was moving around quite a bit, so I wanted to take the time to secure some profits and close out my trade for approximately a 50% gain — BUY +1 IRON CONDOR NET 100 (Weeklys) 11 FEB 22 115/130/115/100 CALL/PUT @5.34 LMT.
This win demonstrates why cyber security is one of my favorite sectors.
As we finish out the rest of earnings season, anything can happen! It seems as though the market wants volatility to stick around a little bit longer, so be cautious, traders!
Interested in trading alongside Danielle? Check out her Stacked Profits Mastery program. Here, Danielle provides real-time entry and exit points for her trades and provides expert commentary during market hours.