Dear Reader,

Next week is a big one for three big-name brands in the market because their third-quarter earnings come out:

1. Uber Technologies, Inc. (UBER)

2. Roblox Corporation (RBLX)

3. Merck & Co., Inc. (MRK)

Now the pundits are already calling for a mix bag of results, with UBER particularly expected to post strong numbers… And whether they’re right or not is anyone’s guess – at least, until next week.

But you don’t have to wait until then to get a read on how much these stocks could move.

There’s a simple method you can use to profit from any stock’s earnings pattern that I’m going to show you – right now.

And it’s as easy as this…

How to Secure Profits Early on Post-Earnings Price Action

As we covered yesterday, many consider pre-earnings company guidance to be the number one tool for investors during earnings season. But remember, even the best analysts in the world can get rocked by a major earnings surprise – good or bad.

That’s why many trades consider earnings season to be a gift or a curse.

If you’re on the wrong side of your trade, you could be looking at thousands of dollars in losses. But if you’re on the right side of your trade – your profit potential is virtually endless.

And, as we’ve discussed at length, while it can be nearly impossible to call a company’s earnings per share (EPS) and revenue numbers before they come out… But you can “predict” how a stock will perform by looking at its pattern.

Here are the track records for UBER, RBLX, and MRK over the last four earnings quarters…

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You can see that RBLX has outperformed UBER and MRK slightly, with earnings beats in each of the last four quarters (a 100%-win rate) compared to their three earnings beats and 1 miss (a 75%-win rate). This data is from my own software… But you can use any financial or earnings website to find similar information.

You can also use options to get an idea of how the markets expect a stock to move (by percentage) after an earnings announcement. All you need to do is look at the option chain and add the option’s premium for an at-the-money (ATM) call or put.

The best options to use are the ones that expire one week after earnings since the price can pop or drop rather quickly. But in the example below, we’re going to look at the RBLX November 1, 2024, $44 calls:

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The entry price for this option is $1.68. As of the time of writing, this represents roughly 4% of the stock’s closing price.

Now take a look at the risk graph and probability of profit:

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There’s a lot of information here… But the key takeaways we’ll focus on today are as follows:

1. Your total cost per contract on this option is $168. Remember, 1 contract equals 100 shares, so you’re multiplying the entry price by 100.

2. Your maximum risk per contract is also $168 since it would cost you $168 per contract.

3. Your maximum profit potential per contract is unlimited. That said…

4. Your probability of profit decreases the closer you get to expiration date. We’ll talk about this more in the coming week… But the farther away you are from the expiration date (November 1st), the higher likelihood of turning a profit on this option.

This gives you the best possible chance for success on an earnings trade, without sorting through every analyst’s expectation – or throwing darts at the wall.

Good Trading,

Tom Gentile
America’s Pattern Trader