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3 Stocks to Trade After Earnings

Tyler Craig

The earnings wave rolled on this week. Some stocks were left battered in its wake while others were lifted to lofty heights. I’ve sifted through the winners and losers to discover the best stocks to buy.

Today I’ll share my findings.

When a company scores an outsized earnings gap higher after dazzling the Street, the euphoria tends to linger. And why shouldn’t it? If the business was able to smash expectations and is performing better-than-expected, shouldn’t that continue to bode well for its share price over the coming quarter?

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Indeed.

It’s a common phenomenon that some refer to as PEAD or post-earnings announcement drift. To position ourselves to profit from the additional upside in the coming weeks, we’re going to toss out trade ideas.

Behold, three stocks to buy after earnings.



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Source: ThinkorSwim

Twitter (TWTR)

Twitter (NYSE:TWTR) tops our list of stocks to buy for a good reason. Its earnings gap was the most powerful and arguably has the best probability of scoring follow through.

This week’s 15% pole vault after its quarterly report was a gamechanger. It lifted the TWTR stock out of its nine-month trading range and finally conquered a critical resistance zone that has been frustratingly strong for ages. Given the magnitude of the jump as well as the groundswell in volume, I suspect Tuesday’s breakout was the real deal.

That doesn’t mean the stock won’t pull back. It just means the dip is a buy.

Implied volatility is high enough to support selling puts for June. In doing so, you will obligate yourself to buy shares of TWTR at lower prices — if the stock drops. If it doesn’t, you’ll simply keep the premium received at trade inception as compensation your willingness.

Sell the June $35 puts for 60 cents.



Click to Enlarge
Source: ThinkorSwim

eBay (EBAY)

Yesterday’s 5% rally in eBay (NASDAQ:EBAY) ushered the stock to the brink of a breakout. While the gains stopped short of fresh highs, I like its chances moving forward.

EBAY stock’s technical posture remains bullish and healthy. It now sits atop all major moving averages and may need a few days of churn before finally powering through the near-term ceiling. If it does, I think eBay has a date with $41.

Given the post-earnings crush in implied volatility, call options are now decidedly cheaper than they were ahead of the event. To increase the odds, however, I like purchasing call spreads.

Buy the July $38/$41 bull call spread for around $1.25.



Click to Enlarge
Source: ThinkorSwim

Union Pacific (UNP)

Union Pacific (NYSE:UNP) rounds out today’s selections with an earnings gap that sent it to record highs. Anytime the fundamentals of a company are powerful enough to push its share price to a level that has been hitherto unseen, it’s noteworthy. And, it says something about just how robust the earnings growth has been.

UNP is being weighed down this morning due to broader market weakness, but I think it’s a gift. The trend across all time frames remains pointing higher, and support looms large near the $170 zone.

With implied volatility in the basement, bull call spreads are the way to go. Buy the June $170/$180 bull call spread for $5.40.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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