On Monday, I created the notations on the Nokia Corporation (ADR) (NYSE:NOK) 30-minute chart below out of a process I followed based on these facts:
I then proceeded to construct for myself an array of potential price levels of significance in order to determine a pre-earnings "price landscape" that could help me decide if this landscape was supportive of the open call position.
I concluded it was supportive, due to the confluence of significant price levels in the area of Nokia's intraday price range on Monday. This suggested that Monday's pullback -- while stressful for a NOK call holder on the day before an earnings report -- was well-contained by multi-level price support, and this actually served to tilt the reward/risk equation of the earnings event toward the call holder.
This favorable reward/risk equation was buttressed by the fact that the nearest overhead resistance area (defined by a smaller cluster of levels of significance above Monday's price range) was roughly 10% above Nokia's average price level on Monday, indicating room for the shares to rally before overhead resistance needed to be addressed. And I also liked the secondary support at the 40-day moving average at $6.44.
So from my technical perspective, the favorable reward/risk profile for Nokia argued in favor of holding this call position and thus taking on the overnight earnings risk.
Of course, I am writing this with a "look back" benefit, as NOK is currently trading at $7.33 this morning after earnings, up more than 8%. But the levels on the chart can still be of value to the trader, as NOK is now within hailing distance of the $7.38-$7.50 overhead resistance area which may serve to contain the rally today and in the days ahead. Of course, should NOK power through these resistance levels, this can be argued to further support the bullish case (though it is usually more effective for options traders to wait for pullbacks to a previous resistance area for entry opportunities, rather than move with the crowd on the breakout).
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