Trading in a Treacherous Earnings Season

January 28, 2015
By Vlad Karpel

We are in the thick of earnings season in our first month of trading in 2015 and are testing the lows for the fourth time this month. This has put traders on edge and a little perspective needs to be established. This is just a lot of new volatility in what is nothing more than a three month consolidation.

In all the major Indices, whether it is the Dow Jones ($DIA), S&P 500 ($SPY) or the Small-Caps ($IWM), we see the lows in December being challenged but not broken.

Misses from Caterpillar ($CAT) and Microsoft ($MSFT) have put traders on edge. But these stocks were already extended and a correction is not surprising. We see how the market reprices the earnings data pretty quickly.

There is a silver lining; we have the small-caps continuing to lead. This relative strength in the small caps ($IWM) continues to give credence in the bullish overall long-term trend.

I am looking to buy stocks that have a tradespoon score of 10. Scale into these and only buy on dips in the stock price

I am buying 70 delta options using March and May expiration months. I am also selling front month premium if the IV rank is above 70. I would change this strategic approach if the small-caps ($IWM) were to drop below $112.

Have a great trading day.

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