This week’s earnings calendar is even heavier than last week’s, setting up plenty of potential opportunities for pre-earnings straddle buys. Many stocks are showing the classic saw-toothed implied volatility patterns – like Amazon.com Inc. (AMZN), advises Lawrence McMillan, editor at Option Strategist.
This pattern often precedes strong earnings-related moves.
To maximize your chances of success, be sure to:
- Only buy straddles if the price is below our recommended threshold.
- For companies reporting after the close, purchase straddles as close to the closing bell as possible.
- For companies reporting before the open, make your purchase just before the prior trading day’s close.
Meanwhile, it really feels like the market is rallying strongly, and perhaps the bottom is in. But the evidence is not clear on that. Even though the S&P 500 Index (SPX) rallied nearly 400 points from Monday's lows last week, it still has a bearish chart.
First of all, the pattern of lower highs and lower lows is intact. Second, SPX has not convincingly overcome resistance in the 5,500 area. Even if it were to rally above 5,500 somewhat (perhaps getting nearer to the now-declining 200-day Moving Average) and then turn back down, that would still leave a pattern of lower highs on the chart – albeit with a less steep slope on the downtrend line. In my opinion, only a close above 5,800 would remove the negativity from the chart.
Equity-only put-call ratios are hovering near their recent peaks. In fact, they are so near those peaks that the computer analysis programs have rated them both as “Sell.” That is, the projection is that these ratios are about to move to new highs. That would prevent “Buy” signals, and frankly, would be another bearish sign for this market.
