Chris Johnson and Jon Lewis

The Key to Finding the Right Stock to Trade -- Plus 6 Earning Plays

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In our Winning Edge options service, which specializes in using options to trade corporate earnings and other market events, we frequently mention "sentiment" and "expectations."

Investor sentiment is simply the collective feelings and actions of those in the market. And we've found that the most accurate sentiment indicators generally reflect what investors are actually doing (what they're buying or selling) rather than what they're feeling and saying (poll results), although both have validity in our analysis.

Why do we consider this important?

Without an understanding for the behavioral environment surrounding a stock, we don't feel that our analysis is complete. You may very well know the fundamentals and technicals, but often it's the sentiment -- or behavioral -- backdrop that makes the difference.

We'll explain how to use sentiment to your advantage when trading and give you six earnings trades that could score you big profits if you act quickly.

Using Sentiment to Gauge the Market's Real Expectations

Have you ever seen a stock drop in price despite an earnings report that met or even beat expectations? Or one that rallies furiously after merely meeting expectations? Why does the stock seemingly move against the fundamentals?

The answer is often contained in the differing sentiment environments surrounding the two stocks prior to the event.