UPST Reveals Earnings Setup

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, each Tuesday, 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 week’s “Tuesday Trade,” I want to outline my trade in Upstart (UPST).

Upstart is a consumer lending company that hit the market as a new initial public offering (IPO) last December. With a little less than a year under its belt, the company  took shares from a beginning price of $20 per share to a over $300 at one point! For that reason, I always like to check on this ticker when earnings season begins.

Upstart is set to report its earnings on November 9 so I began my research by running it through the *Hot Zone, pictured below.

Note: The Hot Zone is a tool that I created to add overlays and time frames that give a trader a visual plus statistical backing for trades. This is the first step for my “run into earnings” setups.

After taking a look at the historical data of UPST during earnings, I felt confident in my choice. The reason I liked UPST was because it was showing up as a relative strength winner and had shown multiple post-earnings runaway gaps. I ended up selling two verticles to get in ─ SELL -2 VERTICAL UPST 100 (Weeklys) 5 NOV 21 310/305 PUT @2.50 limit order (LMT).

Trading IPO setups can be very lucrative but they are also inherently riskier. This is because they have less historical data for reference and are way likelier to act erratic since they are typically less established companies. For that reason, I adjusted my risk to a 1:1 risk-reward and only put up approximately $500 or 1.5% overall.

One day into my trade and banks were beginning to report. During the first week of reports, I like to be a little cautious to assess the overall reaction. The Nasdaq remained below the 21 exponential moving average (EMA) on the daily chart, which is bearish, and we weren’t that far away from October lows. So it seemed that the overall health of the market was looking soft, but my setup in UPST was a honey badger through the market action, so I held.

Despite the market chopping around, UPST remained strong and I was able to exit my trade just days later for a profit at the $400 price point ─ BUY +2 VERTICAL UPST 100 (Weeklys) 5 NOV 21 310/305 PUT @.55 LMT.

Overall, I think we are seeing a lackluster run into earnings this quarter. Moving forward, I will be on the lookout for more opportunities like UPST by finding some shorter-dated options setups as well as trying to find high open interest strikes that overlap with expected moves. The setups are few and far between but there are actionable trades to be taken!

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