In yesterday’s post, I outlined a strategy for navigating Nvidia’s (NVDA) earnings report, acknowledging the coin-flip odds involved. Nvidia did deliver strong earnings, exceeding both revenue and earnings estimates. However, the results fell short of Wall Street’s higher expectations, causing the stock to underperform. Consequently, our earnings trade on Nvidia resulted in a significant loss.
However, I also discussed an approach to enhance the odds of success in these trades – entering early during a stock pullback. This strategy played out favorably with Salesforce (CRM), which experienced a 15% decline following a slight revenue miss in June. I placed a bullish options trade on Salesforce, anticipating a rebound after its next earnings report. Salesforce delivered strong Q2 earnings, exceeding expectations on both revenue and earnings. The stock responded positively, and I exited the trade at a profit, realizing a 166% gain.
This successful Salesforce trade underscores the importance of timing in earnings trades. Entering a trade during a stock pullback before earnings can significantly tilt the odds in your favor. This strategy allows for potential gains during the post-earnings rally, even if the company misses expectations slightly.
Moving forward, I will continue to seek out similar setups like the one with Salesforce. I look for fundamentally strong companies that have been unfairly punished after delivering generally strong earnings. My approach involves waiting for the stock to consolidate a bit after the initial post-earnings plunge, ensuring the stock remains undervalued. Additionally, I carefully consider the company’s overall valuation, profitability, and growth prospects before entering a trade.
If you are interested in learning more about this strategy and receiving notifications when I identify similar opportunities, you can subscribe to my trading Substack or download the Portfolio Armor hedging app. You can also explore our website for optimal hedges, our current top ten names, and create hedged portfolios.
