Tesla (TSLA) reported earnings on Tuesday, April 23, after making a new low after a new low on the year, states Danielle Shay of Fivestartrader.com.
This created a situation where everyone (me included) has been bearish on the stock. Last week, I posted a YouTube video about how I shorted Tesla using a bearish butterfly for the move heading into earnings. So, you may know that I was indeed bearish on Tesla and may be confused as to why I’m now posting a video with a bullish trade that I took. That’s because, in a volatile market, it’s important to shift gears and follow what the charts tell you.
Three Different Trades
It’s also important to differentiate between pre-, earnings, and post-earnings trades. I will frequently be bearish pre-earnings, then place a neutral trade over the report or a bullish trade. This is because countertrend trades can work out very well when sentiment gets too slanted to one side or the other. In the case of Tesla, before earnings, everyone was just so bearish that it made sense to add a bullish trade.
Trading it Both Ways
Since the technicals were telling me bearish, but wisdom was telling me bullish, I traded this earnings report both ways. I placed low-cost, out-of-the-money butterflies at critical target zones. When you do this, one side is going to lose money. Ideally, not both sides, but it can happen if the ticker doesn’t move at all or if it moves far too outside of the expected ranges! In this case, my bearish trade lost money, but I got a 295% winner on the bullish side, which made up for the loss on the other side and more.
Check out the video below to learn more about my earnings butterfly strategy!
Learn more about Danielle Shay at Fivestartrader.com.
