How To Trade During Earnings Season

by Dilip Shaw Date: January 8, 2018

in Stock Trading

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Historically there is huge volatility during earning result season. Companies report their performances every quarter. This is the time even stocks see good liquidity in options and futures trading.

Note: In India compared to developed countries liquidity in stock options and futures is very low. Therefore is is recommended to trade only popular stocks during results season as volume spikes during this time. It is also highly recommended to hedge your future or option position to avoid huge loss in a highly volatile market. You can learn hedging options and futures by doing my course.

During result season there is a sudden spike in volume because every type of trader with jump into trading to make quick money. Whether they are positional, intraday, swing traders, long term investors also for the time being become traders, HNIs etc, everyone will try to make a quick buck trading.

In this article you will read some tips to Intraday (day trade) stocks during earning season:

Do Not Start Trading As Soon As Market Opens – Wait For The Trend to Form

The first ten minutes the stock whose results were out yesterday will be very volatile – within minutes the stock will go up and down by a few points – it will hard to know what the final trend will be. So it is recommended to wait at least 15-20 minutes to follow the trend.

Ignore Gap Up or Gap Down Openings

Gap up may lure you to go long and gap down opening will lure you to short the stock – do not do this mistake. Gap up and down are just reaction to the news – the final trend does not depend on it. Di not get lured by gap up or down of a stock.

On this day you will see that some stocks will gap up and then go down, some stocks will gap down and then go up. If you do not want to ignore this its better to check daily chart of the past couple years on that stock. You must see what happens to the stock after gap up or down. If in more than 60% of the days it usually follow through the opening then you can follow the Gap up or down opening, else ignore.

High Volume in Call and Puts May Confuse You

Next day to earning day the stock will see higher than average volume, this is usual and must be ignored. You may see more open interest in the CE (Call) side and less in PE side and you may think the stock is headed up, well that may not be the case. Similarly more open interest more in the PE (Put) side does not mean the stock is headed lower.

Trend on this day is most important that any other factor.

Do Not Book Profit In Full Trade

It is seen that the earnings usually keeps the trend for about a week. So if you have decided to trade a stock, try to book partial profits on the same day and leave some stocks for the rest move for a move well beyond it’s average true range. You can then exit with bigger profits within a week. Keep a trailing stop loss to your buy position for the rest of the stock, so that you do not make a loss in the trade.

What You Can Do If You Want to Trade Stock Futures With Hedging

In my conservative options and future course there are two strategies that deal with how to trade futures with low risk with hedging and unlimited gain. This will make sure you lose less and make more over time making sure your trades results in more profits than losses.

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About the author: Dilip Shaw I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.