Trade Alert: Earnings 7/17/2023

Our first 2nd quarter earnings season trade

Q2 Earnings Season Kicks Off

As you can see above, we’ve got a lot of companies releasing earnings this week. For names where we’re trading off of social data, I’m going to streamline the outside data I look at in addition for confirmation and timing to these few:

• Zacks Earnings ESP (Expected Surprise Prediction).

• Portfolio Armor options market sentiment.

• Chartmill Setup rating.

What these three metrics have in common as opposed to others we used last quarter is that they’re all essentially forward-looking. Of the three, the setup rating may be particularly helpful in that it’s a measure of technical consolidation. A low setup rating suggests a stock may be overextended, which in turn suggests a bullish earnings report may already be priced in.

With that said, our first earnings trade is a bullish one, where Zacks Earnings ESP is neutral, Portfolio Armor’s options market sentiment is bullish, and Chartmill’s setup rating is 7 (out of 10).

Details below.

The Trade

The stock is Morgan Stanley (MS 0.00%↑) and social data on it is bullish. The trade is a vertical spread expiring on July 21st buying the $86 strike calls and selling the $87.50 strike calls for a net debit of $0.72. The max gain on 5 contracts is $390, the max loss is $360, and the break even is with MS trading at $86.72. This trade hasn’t filled yet. If it doesn’t fill as we get closer to the close, I may raise my net debit to $0.73 or $0.74, but no higher. It just filled at $0.72.

Exiting This Trade

Assuming this trade fills, the spread here is $1.50 ($87.50 - $86), so I’m going to set a good ‘till cancelled limit order to exit this trade at 90% of that spread, or $1.35. As we get closer to expiration, I’ll lower that limit price if necessary.