If you’ve been following New Money Crew long, you know how much I love earnings season.
Most stocks in the market only see big moves about four times a year… around these earnings events — especially if they can beat market makers’ expectations.
So if you’re primarily an options trader like me, then these catalyst events present a fantastic chance to reel in outsized gains.
We’re only a few days into this earnings season and we just saw one of those colossal moves hit the wire…
Netflix Inc. (Nasdaq: NFLX) — once a top growth stock — laid a massive egg for its first-quarter earnings.
No one wanted to see a move like that this early into the earnings slate, least of all me…
Because crushing market makers’ expectations on the downside just made trading options earnings plays a lot harder.
Market Makers Adjust Expectations as Netflix Implodes
Nasty moves like we saw with Netflix are bad news, and not just for the shareholders CNBC’s Jim Cramer duped into buying NFLX…
To understand why, traders need to look at what some call the market maker move (MMM), or expected move.
This number is an indicator that gives traders an estimate of how much an underlying stock needs to move for the buyer to see breakout options prices.
If a trading platform doesn’t provide that information, an easy substitute is to add the price of the at-the-money call and put together.
Heading into the event, market makers were only implying NFLX shares to move around $37 — about 10% higher or lower.
Shares dipped as low as $212.51 during Wednesday’s session — nearly a 40% drop from Tuesday’s closing price.
A move that far out of market maker’s expectations means they’re going to raise options prices through the roof for everyone else.
Now don’t get me wrong, we’re going to have some fun trading earnings…
But with Netflix crapping the bed, we’re going to have to be even more selective.
Check out the video clip and let’s talk about Netflix earnings and the market makers’ expectations.
Don’t forget you can follow me @LanceIppolito on Twitter, Instagram and our YouTube channel for more trading insights and tips. And as always, you can find me
right here talking stocks and options trading — and printing money — on WealthPress.com!
*Disclaimer: The profits and performance shown are not typical, we make no future earnings claims, and you may lose money.
