Goodbye to Pre-Earnings Jitters!

Greetings again Traders!

So, tomorrow (April 27, 2011) is earnings for both EBAY… which I posted last week… and for ABX, which I am puttin’ forth for you right now.

REAL QUICK… disclaimer time again. Now, I have to point out yet another time that any stock I use to illustrate the RadioActive Trading style of risk management… I am NOT ‘recommending’. I am merely DEMONSTRATING exactly HOW I am (or in this case, would be) setting up the trade such that it keeps me out of trouble if I am wrong, but can take advantage of an upside move if I am right.

Got it? Ah good. Also, past performance does not guarantee future results. That said, here is a play that I just ‘put’ together:

ABX Barrick Gold Corp. Buy to Open 400 @ $50.10
ABX 2011 OCT 55.00 PUT Buy to Open 4 @ $7.45
Bought shares of ABX $50.10
BTO Oct 2011 55 Put +$7.45
Total Investment $57.55
Guaranteed Return -$55.00
Total amount AT RISK $2.55 or 4.4%

SO why did I show getting into 400 shares instead of 4000, or just 100? Well, this is the deal: I like to keep my AT RISK amount in any one RadioActive Trade down to just 5% or so of the capital involved. But to add a further layer of protection… plus to increase the likelihood that I will uncover a winner…

…I will only place about 1% of my total capital AT RISK. In the example above, each share of stock is protected so that it will only risk $2.55 per share. Say I have $100K of capital… I can get in to 400 protected shares… that’s 400 shares ABX plus 4 October $55 put options… and have a total dollar amount of $1,020 AT RISK.

That $1,020 is almost exactly 1% of the $100K capital I have on hand… leaving a lot more that I could ‘put’ (sorry, RadioActive Trading pun intended) into other married put plays.

Result? Well, If one wants to diversify… not only to spread out risk but also to increase the chances that one of the picks will be a runaway winner… The above setup will allow for that and keep risk in each individual trade down to 1% in case you are wrong.

SO! ABX has earnings tomorrow and so does EBAY. My earlier post with EBAY shows a similar risk-reduction setup. There are four possible situations tomorrow:

ABX up, EBAY up. Smile for that one 😉

ABX up, EBAY down. Winnings from one might very well outpace losses from the other.

ABX down, EBAY up. OR..! The losses from one might cut into the wins from the other.

Finally! ABX down, EBAY down. Well, can’t win ’em all can we? HOWEVER..! With this setup we can’t lose very much either, only a MAXIMUM of 2% of total portfolio… which means we would still have 98% of out marbles to put in another game. See how this risk management thing works?

Well Traders… I can’t wait to see what exactly will happen next. I really don’t know how it will turn out. I DO know however, that either way the RadioActive Trading method will be shown to be a champ, win or lose. Either way, no sleepless nights due to pre-earnings jitters.

Hey Traders… do you “like” this post? Be sure and click it thataway. Also, leave your comments and questions. Thanks!

Happy Trading,



About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.