Trading the Earnings Season

Oct 26, 2021 04:10 PM ET
Trading the Earnings Season

The earnings season is a period when the biggest companies in the United States publish their quarterly results. The season starts well when big banks like JP Morgan, Citigroup, and Morgan Stanley publish their results. Most times, it usually starts about two to three weeks after the end of a quarter. This article will look at why the earnings season is important and some of the best strategies to trade it.

Why does the earnings season happen?

Publicly traded companies in the United States and around the world are required by law to provide updates to the shareholders about their performance. In most countries, these firms are required to provide the update at least once per year. 

In the United States, a debate about the need for quarterly results has been around for years. Proponents of these results usually argue that the releases provide a check to the performance of companies. 

On the other hand, opponents argue that these results promote short-termism at the corporate level. For one, many companies tend to ignore making long-term investments simply because of their impacts on short-term profits. 

Still, for traders, the season offers an excellent platform to identify opportunities to buy or sell shares. It does this by giving them substantial information about a company’s performance. For example, as we can see below, the SNAP stock price crashed hard after it published strong results. The shares fell because the company warned about the impact of an iOS update.

SNAP stock price after earnings

SNAP stock price after earnings

So, let us look at some of the key information that will guide you to trade the earnings season well.

Know when it starts

First, you need to know when the earnings season starts if you want to day trade it well. In most cases, the season starts around 2 to 3 weeks after the end of a quarter. The months when it starts are in April, July, October, and January. 

Another way of knowing when the season starts is to use the earnings calendar that is offered by several financial platforms. Some of these platforms are companies like Investing.com, SeekingAlpha, Yahoo Finance, Business Insider, TipRanks, and MarketWatch.

The earnings calendar will provide you with a schedule of when companies will publish their earnings. More detailed ones like those of SeekingAlpha will also provide you with more details about the previous earnings and the overall analysts’ estimates. Kimberly-Clark earnings page.

Kimberly-Clark earnings page.

For example, the chart above shows a summary of the Kimberly-Clark Corporation earnings page. We can see the firm’s performance in the previous quarter and what to expect.

Extended hours trading

The next thing you need to know is that many companies don’t publish their quarterly results during the regular session. They mostly publish them before the regular session starts and after it ends. 

Therefore, there are two things you need to know about this. First, if you are a trader, it makes sense to ensure that you have exited trades for companies delivering their earnings before the regular session ends. By doing so, you will be eliminating the risk of being caught in the mix when the stock tumbles after earnings. It is not uncommon for a stock to climb or crash after earnings.

Second, companies that have not published their earnings tend to be affected by their peer’s results. Therefore, if you are exiting a company that is releasing, exiting its close peers also makes sense. In the chart above, we see that the Facebook stock also tumbled after the company published weak quarterly results.

Facebook stock price action after Snap’s earnings

Facebook stock price action after Snap’s earnings

In the chart above, we see that the Facebook stock also tumbled after the company published weak quarterly results.

Bracket orders when trading earnings

There is a relatively low-risk strategy of trading a company’s quarterly results. This process is known as bracket orders. 

For starters, a bracket order is a form of pending orders. Pending orders are those that are implemented when conditions are met. A buy-stop order is initiated when a stock rises to a certain level, while a sell-stop is initiated when it moves to a certain level that is below the price.

Therefore, since you expect major moves after earnings, you could open two pending orders and then protect them with both stop-loss and a take-profit. Here’s an example.

In the chart below, we see that the AMD stock price is trading at $119 before earnings. When it publishes the results, we expect that the stock will either rise or fall. Therefore, you could place a sell-stop at $117 and a take-profit at $110. You can also protect this trade with a stop-loss at $123.

At the same time, you could place a buy-stop at $122 and add a take-profit at $125. You should then add a stop-loss at $118. 

Bracket order example

Bracket order example

Therefore, depending on how the company trades after earnings, you will benefit by having these pending orders. The biggest danger is where the company’s stock opens with a gap in either direction, making it difficult to control the risk.

Other ways to trade earnings

There are other ways to trade earnings. For example, you could buy the dip of a company whose share price declines sharply. For example, if a quality stock like Netflix and Facebook declines sharply after earnings, you can buy the dips because of the company’s long-term track record. It has a strong market share in digital advertising and is growing rapidly in other areas. 

Another strategy to trade earnings is to use the options market before the season starts. You could use freely available data to see any unusual options activity. By doing so, you will be watching how insiders are positioning themselves ahead of quarterly results. You could check this unusual activity using platforms like Barchart.com.

Final thoughts

The earnings season is one of the best periods for investors and day traders. This is because it is a period that sees more volatility in stocks. It also sees some devaluations in stocks as investors exit the worst performers. In this article, we have looked at some of the most popular methods of trading during the season.


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