Earnings Season Trading
Earnings reports are the most significant events for individual stock price movements.
Understanding Earnings
What Gets Reported
- Revenue (top line)
- Earnings per Share (EPS)
- Forward guidance
- Key performance metrics
Why It Matters
- Stocks can move 5-20%+ on earnings
- Quarterly check on company health
- Guidance sets expectations
- Institutional positioning shifts
Pre-Earnings Analysis
What to Research
- Analyst consensus estimates
- Whisper numbers (unofficial expectations)
- Company's history of beats/misses
- Sector performance trends
- Options implied move
Implied Move
- Options market's expected move
- Calculated from straddle price
- Compare to historical moves
- Tells you how much is priced in
Trading Strategies
Pre-Earnings Run
- Stocks often rally into earnings
- Buy 1-2 weeks before
- Sell before announcement
- Avoids binary outcome risk
Post-Earnings Gap Trading
- Trade the gap after results
- Gap up + hold = continuation
- Gap up + fade = sell signal
- Wait for first 30 minutes
Earnings Drift
- Stocks tend to drift in direction of surprise
- Beat expectations = continued upward drift
- Miss expectations = continued downward drift
- Can last weeks after report
Risk Management
Position Sizing
- Reduce size for earnings plays
- Binary outcome = higher risk
- Never all-in before earnings
Using Options
- Define max risk with options
- Straddles for direction-neutral plays
- IV crush reduces option value after
Key Takeaways
- Know the consensus estimates
- Check the implied move
- Have a plan for both outcomes
- Position size conservatively
- Guidance matters more than numbers
Lesson Discussion