The Truth Behind Today’s Bank Earnings
“JPMorgan’s profit spikes 155% as US economy booms.”
“Goldman’s earnings blow past estimates.”
These were just a couple of the headlines blasted across financial media sites today after this morning’s earnings reports.
But what if I told you these earnings were actually pretty “meh?”
Sure, JPMorgan Chase & Co. (NYSE:JPM) made a profit of $11.9 billion during Q2. And Goldman Sachs Group Inc. (NYSE:GS) raked in $5.5 billion compared to last year’s $373 million.
These reports may have beat analyst expectations… but they didn’t beat the market’s.
Here’s the right way to read earnings – and how to play these lousy reports…
First off, let me introduce you to something called the straddle price.
I’ve told you about straddles before. Essentially, it’s when you buy a call and a put with the same expiration date and the same strike price at the same time.
Ahead of an earnings report, I look at a stock’s at-the-money (ATM) straddle.
At yesterday’s close, GS was trading around $380. So, I looked at the price of the $380 call and the $380 put expiring this Friday, July 16 – together, this makes up the ATM straddle.
Adding up both premiums, the total straddle price was $12. And that’s a good estimate of how much the stock could move on earnings.
So, based on the ATM straddle price, the market was expecting GS to move $12 on earnings, give or take.
But GS opened at $381.16 – less than $1 higher than yesterday’s close. And from there, it dropped. Right now, shares are at $372.94 – down about 2%.
Now, let’s look at JPM. At yesterday’s close, the U.S.’s biggest bank was trading for $158. Add together the price of the $158 call and the $158 put (expiring this Friday), and you got $4.00.
Remember – that means that the market expected JPM to move $4 after its early-morning earnings report. But JPM opened at $156 – $2 lower than yesterday’s close.
See what I mean? It doesn’t matter that the banks reported “out of the water” earnings. Because according to the stock price, these earnings reports were nothing impressive.
And here at Profit Takeover, we’re traders. So the stock price is what matters most.
But we can turn the market’s disappointment into a profit. You can fade the earnings sale on JPM by buying calls. The stock is down now – but once earnings are behind us, this name has energy to move back up again, handing you a profit.
Earnings season is one of the biggest market-moving events of the year. And this is just the beginning.
Want more earnings trades like this? Then be sure to tune in right here tomorrow at 10:30 a.m. ET, where I’ll tell you exactly how I trade earnings…
But wait – what about my best trade?
Every time I have a new trade – or any important Profit Takeover update – I’ll send an alert straight to your phone. It’s quicker than email, and it’s the only way you can receive my top earnings trade.
- iShares Silver Trust (NYSEARCA:SLV)
Despite rising inflation, precious metals like SLV and the SPDR Gold Trust (NYSEARCA:GLD) haven’t gotten much traction. That’s why our SLV call is not profitable… yet. I’m still confident that there’s some decent upside potential in SLV that can lift our call into green territory – and I’m keeping a close eye on the ETF.
- Poshmark Inc. (Nasdaq:POSH)
I’ve got a secret insight into the retail world – my wife. She runs a fashion blog and has access to sales numbers from different retailers. And POSH is gaining a ton of interest in the retail side of things. So, I’m adding POSH to my retail trading list.
- Up Fintech Holding Ltd (Nasdaq:TIGR)
Big money is flowing into this online broker for global Chinese investors. First, a big-money customer bought 1,500 of the TIGR July $30 puts, betting that the stock would drop – and they were right. So, they sold those puts and rolled their position forward, buying 1,500 of the August $25 puts.
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When a big customer is right about a trade, well, that’s when I’m really interested. To piggyback this trade, I’d look at the out-of-the-money (OTM) August $17.50 puts for $1.40.
- Macy’s Inc. (NYSE:M)
Yesterday, we saw big money in the retail sector after a 4,000 contract bullish trade on Walmart Inc. (NYSE:WMT) hit the screen. But today, my focus is shifting to M.
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Someone bought 5,000 August 21 $22 calls on the retailer. Remember, big money isn’t always smart money – but in this case, the customer has been right, as M has been on a steady climb higher.
This is a good recovery trade. I see M heading above $20 – maybe even to $22, $23, or $24. I’m looking to piggyback this trade a little closer to the money with the August $20 calls for $1.10 – we only need a 5% move for these to turn an asymmetrical profit.
VIX Traffic Light
Since spiking to 20 last week, the VIX has continued on its downward trend, and sits at just over 16 today.
It’s important to realize that the VIX spiked last week – it didn’t swell. That means it promptly came right back down, a move that’s bullish for the market – and bullish for our UVXY put.
Right now, our put is up over 50%. We’re targeting an asymmetrical gain on this one, especially as the VIX continues to fall.
Which, according to today’s red traffic light, it will.
July 13 2021