Spectacular is not going to be good enough tonight

Spectacular is not enough when everybody already expects spectacular.

Traders relearn this one every quarter. A company beats every number on the page and gets sold anyway, because the price already had the beat in it. The move comes from the distance between the result and the expectation, and the options market prices that distance before anybody reports anything.

So read the bar before you read the company.

How to know when to sit down

Pull up the front expiration and find the implied move. If that number runs 9% or 10% of the underlying, the market is telling you it has no idea what happens either.

That is a crap-filled wonderland in there. Wide markets, high volatility, and a price that already contains every good outcome you were planning to bet on.

Could I catch a butterfly around something like that? Probably. Do I want any part of it? Not with those spreads.

Nobody hands out prizes for having a position. Sometimes the whole trade is to back away and hide in a little cave during the announcement.

AMD tonight is the live version. A $46 move priced into tomorrow, a $53 move into the end of the week, on a $500 product. My honest read: I ain't got a damn clue, and neither does anybody else. The earnings could be spectacular. They have to be better than spectacular.

The other kind of print

Some reports are not about the numbers at all.

On a first-ever report, or any story stock where the whole valuation is about what comes next, the conference call outranks the income statement. People are not listening for the quarter. They are listening for the future of the company.

SpaceX after the close tonight is exactly that. It does not matter what their numbers happen to be. Everybody is going to be looking at what is being said about SpaceX.

For scale, SpaceX is a $1.5 trillion company and Tesla is $1.3 trillion, so they are pretty much neck and neck. You got that going for you there, big guy.

The market is implying a 16.5% for SPCX earnings this evening. Which is another way of the market telling you they have no clue what’s gonna happen. 

Strap in, and buckle up, it could be a bumpy ride. 

To your success,
Don Kaufman

P.S. At the end of the day, we are just trading probabilities. The pros don’t try to be right every time, they want to be right over a series of trades. This helps you get there.