Summary: By the example of AAPL, we demonstrate how to follow a risk-limiting strategy to trade stocks over earnings.
There are multiple ways to decide for a trade:
- Fundamental
- Technical
- News Based
Buy the
Rumor, Sell the News, is a simple saying, but what do we do with it as a trader
or investor?
Apple inc. is
reporting first-quarter earnings today, April 28, 2021, after the stock market
close. It is always exciting to hear what Apple has to say; however, today, we
will experience a leading impact on the stock markets overall. The focal point
of attention will be the introduction of the new generation of 5G capable
phones. By 2025, 5G networks are likely to cover one-third of the world’s
population and trigger a demand for at least 1.2 billion new phones. The impact
on the mobile industry and its customers will be profound. 5G is more than a
new generation of technologies; it denotes a new era in which connectivity will
become increasingly fluid and flexible. Compare it to going from dial-up
internet to broadband or high-speed internet: a significant change in
capabilities.
AAPL stopped
reporting units of iPhones sold in 2018. The iPhone segment accounts for about
50% of Apple's revenue. We still were able to get some insights and into the
market shares of units sold of the key players:
AAPL: 21 % market
share, Samsung 16%, Xiaomi 11%, Oppo 9%, Huawei 9% and a wide variety of others
covering the rest.
With the
roll-out of 5G, communication companies, smartphone producers, and chip manufacturers
are looking for profitable growth in the years to come.
All of this
sounds just positive, but we still let the chart tell when to buy or sell:
AAPL
Weekly Top-Line Chart, Nov. 2020 to April 2021
Situation-1: After a time of ambiguity (NLT
Purple Zone), where the price direction was uncertain, we had an end of purple
zone signal with a buy-threshold > $134.40. The buy-stop order was filled in
the price development of the next candle (week of 12/28/2020) and carried out to
the target (dot on the chart), not considering further confirming signals. When
the target price was reached, the share price pulled back, but we were out of
the trade!
Situation-2: The NLT Top-Line signal of the week
of 4/5/2021: Buy > $133.04 was confirmed in the price development of the
week 4/12/2021, and such, we are long in AAPL with two potential targets:
$139.89 (Target-1 to be reached on 1-5 candles) and $146.78 (Target-2 to be
reached in max ten candles).
Trading over
earnings has an uncontrollable risk; hence, we chose a limited-risk strategy,
where we know at entry the max loss of the trade, regardless of the price
development of AAPL. Most importantly, we will participate in potential upside
opportunities and keep the ability to repair the trade if it goes wrong (the
concept of never stop loss trading gave us our name, but we shortened it a
little)
With the NLT
concept, we simplify life for you and let the chart tell when to buy or sell,
specifying all decision-making dimensions at once:
· Entry Conditions: Execute buy-stop or sell-stop orders
at pre-defined price thresholds at assumed probability
· Exit Condition: When is the target reached
· Stop Condition: By not controlling the stop in the
AAPL trade over earnings, we work without a stop but with a risk-limiting options
trading strategy.
· Risk Management: Operating with limited-risk strategies
only, we prevent drawdowns.
When you are
familiar with options trading, you know that Vega, the volatility component in
the options price, accelerates the cost of the option over news events like
earnings. To not pay too much for the time we want to control the stock; we
cover the potential time decay by combining risk-limiting options strategies on
the stock options put- and call side: collecting premium and paying premium.
If trading
was easy, nobody would ever go back to work. The good news: it is learnable.
The NLT
trading concept over earnings announcement is only one strategy of many; we
teach in the hours of working together.
Here a short overview of what you will all experience by operating with rule-based
trading decisions as a day trader, swing trader or long-term investor in
margin-, IRA, and even 401(k) accounts.
NLT
Learning Program Overview
contact@NeverLossTrading.com Subj: Consulting Hour
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