[Options] Earnings Catalyst Sets Up a Good Add-On Opportunity

Sean McLaughlin
April 8, 2024

In today's Flow Show, me and Steve Strazza came out swinging with an opportunity to add to an already winning options trade.

Back in late January, we entered into a bullish longer-term bet in Wells Fargo $WFC. You can read about it here. That original position still has until January 2025 to play out (another nine months).

But take a look at this high & tight flag forming on the eve on their next earning release scheduled for this Friday morning:

To us, this screams an opportunity for an upside resolution happening with the earning report being the catalyst.

Looking into the monthly May expiration options, premiums are not bad for a play targeting a measured move to the $70 area.

Here's the Play:

I like buying $WFC May 60 calls for approximately $1.15 per contract. Today's premium represents the most I can lose in this trade in a worst-case scenario.

We're betting on the earnings event to be the catalyst. With this in mind, here's how I'll manage risk:

  • Wells Fargo announces earnings this Friday morning (4/12) before the market opens. If $WFC opens the trading day on Friday below $56 per share, then this bet is likely wrong (or early) and I'll look to sell these May calls for whatever I can get for them.
  • If $WFC opens higher, then I'll look to hold these calls into the month of May. On May 1st, I'll exit if the calls are out-of-the money ($WFC trading below our $60 strike). Otherwise,  I'll continue to hold with a trailing stop into expiration day.

Additionally, if at any time these calls lose 50% of their value, this will also be my signal to close the position to protect whatever is left.

Meanwhile, I'll look to book some profits by selling half of my position if $WFC hits that measured move target at $70 that Steve and I discussed in the above video. And then I'll hold the rest with a trailing stop into expiration.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

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