How to trade around earnings?

hedron

hedron

Does anyone have a rule dealing with earnings? Now, I'm not asking about trading earnings directly, that is on earnings day based on momentum. I hope that made sense. But it seems that the best technical setups (on a daily, weekly or even hourly) always exists around earnings time. I do not hold through earnings unless I intend on holding the stock for more than a year. But I've missed the only good trades I've noticed this year because of that rule, but then, in the past, when I violated that rule I got my ass handed to me. Which is why I made the rule in the first place.

I'm only thinking now that maybe I should reduce my list to only stocks that I would consider holding for more than a year. That sounds like a good compromise. I'm just wondering if anyone has any insight they want to share.
 
This is a great question, unfortunately I don't think there is a great answer.

Earnings are risky, plain and simple.

You can either protect yourself and risk not obtaining much from a good run, or you can take the risk, and in contrast get the run.

There's also selling covered calls but imo is more of the same.

Great question though, when it's an investment I usually hold through earnings with deep out of the money puts, if it's a trade I go flat, and don't think twice about it.

Would be nice to read other's opinions.
 
hedron said:
Does anyone have a rule dealing with earnings? Now, I'm not asking about trading earnings directly, that is on earnings day based on momentum. I hope that made sense. But it seems that the best technical setups (on a daily, weekly or even hourly) always exists around earnings time. I do not hold through earnings unless I intend on holding the stock for more than a year. But I've missed the only good trades I've noticed this year because of that rule, but then, in the past, when I violated that rule I got my ass handed to me. Which is why I made the rule in the first place.

I'm only thinking now that maybe I should reduce my list to only stocks that I would consider holding for more than a year. That sounds like a good compromise. I'm just wondering if anyone has any insight they want to share.
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Earnings is a moot point if you are going to hold for more than a year.
 
FXforex said:
Earnings is a moot point if you are going to hold for more than a year.
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I understand where you are coming from, but I wouldnt feel comfortable going through a 50% drawdown, even if it's a long term position.

Depends on the investor.
 
I used to buy calendar spreads of high-beta stocks just before earnings, expecting that, after earnings, the IV of the front month would go down more than the IV of the back month and thus the spread would widen. However, almost every single instance, the stock went up (or down) a lot, and both legs of my options went DITM and the spread got reduced to almost nothing and I lost money. So, I don't do that any more.
 
Earnings plays (buying / shorting stocks) can be a crap shoot.

If you know the stock, you can buy/sell - short/cover after hours and do very well.

Unless you have some mysterious info, options may be the better idea keeping in mind the vol crush that typically happens during earnings.
 
You could probably start with a sub to earningswhispers.com or analyzing the predictive nature of options straddles/IV prior to releases.
 
I read your article in Seeking Alpha on calendars which was excellent.

Given you tight stop loss/tp, however, I can only assume that you do major size.
 
xandman said:
I read your article in Seeking Alpha on calendars which was excellent.

Given you tight stop loss/tp, however, I can only assume that you do major size.
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Thanks. The stop loss is always relative to the account size. For example: if I want to risk 2% of the account per trade, I will allocate 10% of the account to the trade and set stop loss of 20%.

The calendars I described in my SA article are regular calendars which I still do (just closed AAPL calendar last week for 20% gain), but most of my calendars now are pre-earnings calendars. I have TIF and FDX right now, both are up nicely (between 15-30%).
 
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