What You Can Learn From GOOG and SNDK's Earnings
By Bryan Bottarelli, Market Report
Today’s earnings announcements are becoming more and more perplexing to trade. Take Google (GOOG:NASDAQ) for example. The company reported a 28% gain in earnings for the June quarter -- and witnessed a revenue jump of 57% from the same period last year. But these results disappointed Wall Street and the stock is down over $30.
Now let’s look at SanDisk (SNDK:NASDAQ). The company reported that Q2 profit fell 70% from last year, as deteriorating flash memory prices ate away at profits. But since the company “sounded bullish” about prices and demand looking ahead, the stock rose 4% in early trading.
So what you have is a company like GOOG exceeding last quarter’s numbers (but falling short of expectations) -- which leads to GOOG shares getting pummeled.
At the same time, you also have a company like SNDK falling well short of last quarter’s numbers (but exceeding expectations) -- which leads to SNDK shares rocking.
Confused yet?
It just goes to show you, there is no logical way to play earnings -- and this is a clear illustration of why I like to play stocks leading up to their earnings release.
After all, the one thing that was consistent with GOOG and SNDK in the weeks leading up to their earnings dates was that each stock was moving higher in anticipation of the numbers. So in my view, the best tactic is to play these moves via options leading up to the announcements -- and then take profits a day or two prior to the actual announcement. That way, you mitigate the directional risk and walk away safe with a nice profit in hand.
This is what Adam and I recommended doing in our WOW service on our Cisco (CSCO: NASDAQ) call play a few weeks back. CSCO was moving higher leading up to its earnings release, and the call options we were holding were showing a strong gain. So we said (in not so uncertain terms) to take the profits to reduce the risk of holding CSCO into its earnings announcement. And this proved to be strong advice -- as anyone who heeded our guidance sold their CSCO calls for the best prices of the week.
Until further notice, this should be the trading tactic you implement in any of your positions leading into earnings day.
Bryan