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To Trade Earnings, You Need a Mercenary Heart: Market Recon

"Either you run the day or the day runs you." -- Jim Rohn

Mercenary Heart Last Monday, Netflix (NFLX) ran like the wind after it released its second-quarter earnings. Last night, Action Alerts PLUS charity portfolio holding Alphabet (GOOGL) ran the other way. Hasbro (HAS) released earnings yesterday morning, and was immediately taken out to the woodshed. How do you know? How does a trader know where to place their "educated money"? Tough choices. Last night, a GOOGL straddle expiring this Friday would not have worked, unless you wrote it. That stock is down a rough $25 as pre-opening trade takes over from the after-hours crowd. A straddle (for the kids who do not yet play options) is a simple strategy where one plays volatility, rather than direction. One either buys or sells both a put or call with the same strike price and expiration date in the same underlying security. To get long such a strategy for GOOGL playing with just one contract on each side would have cost you a rough $4500 going into the close. You would be out approximately two grand at this point, with the clock ticking on your time premium. Getting short such a strategy would have worked in this instance, but will cut you like May wheat on other days. At least the long straddle limits extreme loss.

The point is that to play these types of high-profile earnings, even for those that trade with a mercenary heart, one must take a directional chance in order to make any money. You must understand not only the companies themselves, and how the fast money crowd reacts to news, but also have the ability to sustain the immediate loss of principal when your directional shot is wrong. You also have to know when not to push it. I played both last week's NFLX results and last night's GOOGL outcome. Both worked to my favor. Do I still play Amazon AMZN on Thursday night? I might, but mentally, I will not be surprised if I fail to go three for three. Probabilities just don't work like that too often. By the way, these are trades, not investments. The two should be kept separately, as you should measure your success in your investments against a much higher bar than you should your trades. For instance, I took my position in GOOGL a few minutes before last night's closing bell. I was flat the name less than half an hour later. No emotional attachment. None. Mercenary heart.

Planting a Flag

How interesting were Hasbro's numbers yesterday? As an investor, this name interests me greatly. If you have followed me for any time now, you know that I have long liked the name. You also know that I have swung and missed in my foolish attempts to pick the name up at a discount on more than one occasion. What do I have here? Another opportunity? The firm was, and is stil,l great. The dividend is not bad. Revenues were up 11% year over year (+16% in North America, and +18% in the Asia-Pacific region), franchise brand revenue ran 21%, gaming revs up 6%, and operating margin grew. So, what gives, Sarge? They don't just smash a stock like that for nothing.

No, you're right, they don't. The stock has had quite the run. I originally started trying to buy this name when it was trading at $95. Part of my personal discipline is my refusal to chase a stock on the run. Though I end up missing on a stock like this, I believe that over the course of 40 years, this discipline has served me...


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