NOTE: The strategies discussed are for educational and informative purposes only. It is not intended to be investment advice.
IT’S EARNINGS SEASON BABY!!!! The second-quarter earnings reports are going to begin coming out this month. That means there are opportunities abundant. This post will highlight the strategy I use to capitalize on the momentum during earnings season.
Quarterly Earnings Report
A quarterly earnings report is a quarterly filing made by public companies to report their performance. Earnings reports include items such as net income, earnings per share, earnings from continuing operations, and net sales.
A company that is reporting earnings soon tends to have its stock price gradually increase or decrease depending on the expected results. If a company reports a successful quarter it’s stock value can spike up drastically. On the other end of the report is worse than expected the stock price can plummet. With this knowledge, you can capitalize on the momentum and ride the wave through its course.
How to Play the Earnings Run Up
Here is an example of how I would play earnings. Let’s say Company XYZ is a well-known company that has been performing decently well in the past couple of months. Company XYZ is currently priced at $100. They report earnings in 3 days. To capitalize on this I would enter a position that covers the date of earnings. So in this example today is 07/07/2020(Monday) and they report earnings on 07/09/2020(Thursday). My approach to this situation is as follows.
- Buy a contract that covers the date of earnings.
- I like to get contracts at least 1 week ahead of the earnings date so that the theta(time decay) doesn’t eat away at the value of the contract. In this case, I would get a 07/17 weekly contract at a minimum. If weeklies are not available for that company then I would go a month out to 08/21. Always play safety first.
- Taking profit before the day of earnings is key to this strategy.
- The goal is to play the runup and not the actual earnings report. It is very possible that Company XYZ could statistically perform well on their earnings but still go down in price due to any number of reasons. So take profit when it is available!!
- A preference of mine is to get multiple contracts at an affordable price. If I yield successful results on the contracts and I believe the company will do well on the report I may close all but ONE contract and swing it into the earnings report.
- Plan your positions a week ahead.
- The longer you wait to enter a position before earnings the more expensive the premium gets. The premium is the price you would pay to buy a contract from the seller. Things like demand, anticipation, and volatility can increase the price of the contracts. It’s best to avoid overpaying for a contract. if it looks too expensive then either wait for the price to come down or look for a different position.
Resources
Some resources you can use to find information regarding which companies are reporting earnings soon are:
Earnings Whispers – https://earningswhispers.com/
Yahoo Finance – https://finance.yahoo.com/calendar/earnings/
Stocktwits – https://stocktwits.com/discover/earnings-calendar/
