Want to put that “Trading Around Earnings” tutorial to work? Check out PayPal (PYPL) (October 18, 2018)
I hope you enjoyed your earnings tutorial. We are going to put that to play here on PayPal ( NASDAQ: PYPL ). You can see the stock prior to their earnings release after hours, which put the stock up 7 percent. I wish it was up 10, it would be a clearer trade but it put it up 7 some percent. This is why it is problematic to sell or to be in stocks over earnings. Because here like so many of these other stocks and charts that you are looking at was kind of a classic bearish wedge pattern; so you see this take place today. A big breakdown, the stock closed down over 3 percent but earnings are out after the market. And so what happens? Buyers come in.
Here’s the thing: You see the way that the stock has actually traded here. Throughout the day, clear down here and then after hours earnings come out; somebody probably burped during the conference call, the stock goes up even more. So now you are looking at a strong open tomorrow morning. In my view, on these kinds of things, the better trade is not to be holding over earnings unless you have a really big profit and you are willing to risk some of it in order to maybe get a little bit more.
The best trade is to wait until after the stock pops on earnings. And so tomorrow, with the way the market is right now, I would not look to buy this stock at the open. Frankly, I would wait for the stock to peter out a bit and maybe consider shorting it. Maybe not, but in my view, you don’t want to buy a stock that has been chopping around like this and it gaps up 7 percent; just don’t do it. Because where is it gapping into? It is gapping right into Helga’s House of Pain. Everybody that bought up here is a loser; they are happy to sell you their shares.
So you want to stay away from this first thing in the morning. If it starts rolling over; if it trades below the 200-day moving average, boom! That is when you fire off your short and then you keep a buy stop just above wherever you shorted the stock. So that is how you will trade PayPal ( NASDAQ: PYPL ) on an earnings trade. I hope that works out for you.
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