| | | | Real Money, Real Trades: An Earnings Trade Win
In this newsletter, I try to be as authentic as I can. That means, sometimes I talk to you about my losses and sometimes I talk to you about my wins. Today feels like a win kind of day…
Back on July 30th, Howmet Aerospace (HWM) reported its earnings. HWM is a little-known stock, but it has been a consistent earnings outperformer.
For the past few years, after almost every earnings release, the stock has trended upwards in the immediate action (especially the week after).
Over the last five years, the stock has risen over 350% and over the last year it’s jumped about 88%... Not quite Nvidia’s numbers but still wildly impressive for a stock most people have never traded.
Because HWM’s growth has been so consistent, I decided to play it once again this past earnings.
But keep in mind, HWM hasn't CRUSHED every earnings... sometimes it has popped big and other times it's just solidly outperformed and pushed up the stock a few percentage points.
For that reason, I didn’t want to require HWM to make a massive move. I wanted to play it where HWM could move a few percent and still generate a nice return.
Trading out-of-the-money calls at the time required HWM to outperform the expected move by a good bit. If I remember right, it would have needed a move of nearly 20% in the stock to make any real money – that’s a lot to ask for any stock.
Instead, I did a spread where HWM only needed to pop about 4% to make a 133% return on the trade. I placed it around 3pm on the 27th, the day before its announcement.
Fast forward to the market opening after Howmet reported earnings and sure enough, HWM delivered again and shot up.
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