joe.watanachote

Sat Jul 29, 2017 1:40 am

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Why you should not bet on the plunge in stock price during earnings season?

Dear Traders and Active Investors

During earnings season, you must know the date your company reports its earnings.
Normally, I also prefer to know the ex dividend date of my holding, especially if the stocks have 4% or more yield. Many season traders like to bet on the plunge in stock price for bad earnings or the raise in stock price for good earnings. However, in my experience it is better to stay out of it entirely, unless you have some profit to weather the volatility.

Here are some examples from July 2017 earnings season,

BIDU on July29 2017 jump on good earning report
BIDU on July29 2017 jump on good earning report


Bidu jumped over 9% on the reporting.
If you feel that you have enough profit to weather the volatility, you may test out your luck. Otherwise it oftens unpredictable. For example, LINE Corp has announced a drop in number of monthly active users, but stock went up 3% anyways.

Although, many would feel that earning price volatility is not such a big deal but here is why you should concern about it:
1) If you use margin on your stock.
2) If you can not effort to lose if stock gap on that day.

Starbuck large drop on July 29 earning reports
Starbuck large drop on July 29 earning reports

Starbuck with disappoint earning dropped over 9%.

It is best to be out of a stock before a company reports earnings, or reduce positions substantially before earnings are released to lower your risk as a gap could destroy your portfolio.

Sometimes company changes reporting date, so keep that in mind when you are in earning season.

Because many traders knows that retail traders may set stop loss very tight so during the season smart money will try to squeeze you out of the position. See my example of American eagle on 15 min chart. The stock moved 4% from the top to the bottom.
AEO squeeze
AEO squeeze


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