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inthemoneystocks

Earnings Season: Know When To Hold Em, Know When To Fold Em

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It's earnings season! This is when corporations will report their quarterly results and usually issue future guidance for the company. This is also a period when stocks will often have big price swings after the earning announcement. For many traders and investors it can be an exciting time to trade, but danger lurks when market participants hold stocks into an earnings announcement.

 

Just yesterday, I closed out a long trade in Dean Foods Co (NYSE:DF) at $14.99 a share. The reason I exited the position was because the company was scheduled to report earnings this morning before the opening bell. Unfortunately for me I lost 0.11 cents on the Dean Foods trade as my entry was $15.10. I know, nobody likes to take losses on trades, but sometimes that is the best move to make ahead of an earnings announcement. If you take a look at the reaction today in Dean Foods Co today after earnings it is not pretty. In fact, DF stock is trading lower by $2.80 to $12.17 a share today after reporting earnings. Believe it or not, this is a decline of nearly 19.0 percent on the day. Now my 0.11 cent loss looks like a victory after this terrible reaction to the Dean Foods Co earnings report.

 

Now to be fair, sometimes stocks can rocket higher after earnings reports. Many traders will often celebrate with excitement if they hold a stock and are on the right side of the earnings reaction. Just think how I would feel if Dean Foods Co was trading higher by $3.00 after I sold it yesterday, probably not very good. After trading for so many years I have realized that trading earnings is very much like gambling, the odds are simply not in my favor to make that bet. So I have accepted the fact that holding stocks into earnings is extremely risky and simply not my style of trading.

 

If you do decide to hold a stock into an earnings announcement it is best to hold a low beta stock. A low beta stock is an equity that is less volatile, will historically move in a smaller and tighter range. Earlier this earnings season I held Bank of America (NYSE:BAC) into earnings. The stock traded down about 0.30 cents before ultimately recovering and making new highs. BAC stock is a low beta equity and I was actually in the money on the trade before earnings, so there was not a lot of risk of a major decline. Either way, holding stocks into earnings is extremely risky, every trader and investor should understand the odds are no longer in your favor ahead of a corporate earnings report.

 

 

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Nicholas Santiago

InTheMoneyStocks

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      Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

      Please note that times displayed based on local time zone and are from time of writing this report.

      Click HERE to access the full HotForex Economic calendar.

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      Click HERE to READ more Market news.

      Dr Nektarios Michail
      Market Analyst
      HotForex

      Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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