Most companies that warn do so after the market is closed or prior to the opening. On the warning we will automatically make the decision to buy Put options. There is no decision chart for a warnings trade - the fact that a company warns IS our decision.
When the market opens the 5 minute chart will act as our action chart.
Wait for a good pullback (in this case, a rising stock) where a quality trend line can be drawn connecting at least 3 points. Following the break in the trend line, the majority of the charting indicators must be signaling a falling price and the MACD Histogram must agree with this. Patience is a must here, as the correct entry point may take as long as a couple of days to materialize. Be mindful of the market calendar and any upcoming events and plan this trade accordingly.
Purchase either in-the-money puts or 1 strike price out-of-the-money puts. If it's early in the month you can buy this month's puts, otherwise it's safer to buy next month's puts. It is also safer to use in the money puts.
General Notes:
Warnings happen every warnings season. Basically, a warning is a company issuing lower guidance on their upcoming earnings projections, and saying they won't beat their upcoming projections. These projections are issued by the company... so by them saying they won't beat their own projections, that tells Wall Street one of two things: the company either sucks at what they do, or they are liars. Either way, the stock will go down.
Be mindful of the market calendar. If you attempt a warnings trade when the entire market is set to rise, it may not work.
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