As it is known, it is necessary to know the definition of things to understand how to work with them. That holds especially true if it is something that involves your business and economy like stocks trading.
The earnings season is the period during which a huge number of openly traded companies release their three-monthly earning reports. That increases the flow of information that comes from each one of the companies, which is going to create a fast price movement.
Usually, the earnings report season start one or maybe two weeks after the last month of each quarter. This is a time when the investors are able to judge how well a company´s business is going.
The company’s earnings can definitely increase stock volatility to truly significant levels.
The investors and traders are frequently looking for ways to do their trading with stocks in the earnings reports season.
A stock is a part in the ownership of a company. Holding a stock represents a privilege on the company´s possessions and earnings.
It means that if you obtain more stocks, your ownership stake in in the company is going to become bigger than what it used to.
How to trade in the earnings report season.
The earning season can be one of the most volatile and lucrative times of the year to get on the trading world.
Since it’s really unpredictable, it is useful to have a few strategies in mind to do a good and profitable trading.
Married put: you can buy shares of the fundamental stock and then turn around and buy out of the money-put options against the shares already mentioned. This strategy is hypothetically unlimited.
Covered call: with this strategy you can protect yourself against potential earning disadvantages at the expense of sacrificing a bit of advantage.
Long strangle: this is definitely the least expensive way to play extreme earnings volatility. The puts and calls are bought at a different strike price.
Long straddle: this strategy involves the act of buying the calls and the puts at the exact same price, which is normally near the stock´s current market price.
At that time of the year, you should be active in the world of trading; just have in mind the fact that every market is unpredictable and anything can happen.
You need to be aware of buying stocks based exclusively on the level of their positive EPS surprise.
A really good strategy is to short the stocks that miss estimates by extensive margins, always covering them within a couple of days.
You can also buy some stocks that are able to beat on earnings after a string of missing estimates. It’s a discreetly lucrative strategy.
Buying stocks that have a primary price breakout on a really huge volume after earnings beats is truly lucrative, particularly if it is a stock that has had in the past a string of approximation miss.