dani face dani quote

How to trade earnings effectively

Hey Five Star trader,

Today, I want to talk about a trade that is a little bit different from what we normally discuss in this newsletter. 

Normally, I talk to you about my favorite momentum or swing trades. These are usually trades that will last anywhere between three days and three weeks, however, there’s something really important that if you haven’t already added to your trading toolbox, should be, and that is trading earnings.

A lot of people hear earnings, and they get a little bit nervous because earnings move fast and change overnight and it often brings a volatile week in the market.

So why would you want to add this trading to your tool kit…? 

There’s a very clear reason. Earnings season comes around four times per year, so that gives you four distinct seasons where you have lucrative opportunities.

The breakdown to different earnings trades…

There are multiple opportunities within earnings season.

1) Trading the run-up into earnings.
Here, you can start to trade earnings before the reports even come out. I’d consider this type a pretty high probability trade, and they are also considered swing trades.

2) Trading the actual earnings report.
This one is also going to be a little bit more aggressive because it’s an overnight trade and usually it’s all or nothing.

3) Trading the post-earnings move.
Here you trade the report after it’s been published. Typically, these trades are less volatile because you already know the outcome and there isn’t as much speculation.

Let me show you how I traded Activision Blizzard (ATVI) during earnings season using option number 1: trading the run into earnings…


Here, I decided to take this trade on AVI because I determined it had high probability, but how did I know that?

One factor I consider when picking an earnings trade is the tickers past earnings reports. For this, I like to use my Run into Earnings analysis tool because it looks back at the past eight quarters, and it’s going to tell me how this company has traded after the previous eight quarters’ earnings reports. 

What I’m looking for is consistency.

Looking at ATVI specifically… 

I could see that it had traded higher over the course of the last two years, so on a fundamental and a technical basis, that’s showing a pattern of higher highs and higher lows. I also saw that over the past few reports it would sometimes trade lower, while other times during earnings it would trade higher. By just looking at this alone, ATVI didn’t pass my consistency test, but I made an exception because other factors gave me the edge to know this was a great trade.

A key factor that my analysis tool did not tell me was that ATVI is a video game company. 

This is important because we’re in the middle of a pandemic and video game companies have been COVID darlings. Additionally, I was consulting with a good friend of mine, Landon from LikeFolio, and he was also bullish on the video game earnings reports. His data is collected by using social media to determine what consumers are using and he had some fantastic numbers that showed video game usage was up. So I took the factors in front of me and decided to go bullishly right before the report.

How the trade went down…


What I did was I sold a put credit spread directly before the report at the money for 1:1 risk-reward ratio. The benefit of doing this is when you sell a put credit spread right before the report, you’re betting on direction. 

By selling the put credit spread, I was betting that Activision Blizzard would go higher. What ended up happening was ATVI  had such a massive move that it actually traded 2-3x higher than what the market maker expected. This was in essence, a blow-out earnings report. Because I had sold a put credit spread directly before this report when the market opened up the next day, I had a max profit of 100% overnight on ATVI.

Some additional advice:


While this earnings report gave me overnight profitability, I’ll remind you that this was aggressive because it was an overnight trade. I was either going to win or going lose, and there’s no ability to take a stop, which is why it’s important to risk what you’re willing to lose for these trades. 

In order to mitigate my risks, I use a smaller size than what I do on a normal trade. For example, I use 1% to 2% allocation. You can also use a half percent allocation, whereas on a directional trade I would use closer to 3% to 5%.

It’s really important for us traders to understand how to look at earning season because it comes around four times a year. But it’s even more important to actually understand how to trade it because there are opportunities like this if you know where to find your edge and how to use the data. If you want to learn more, join me at my free earnings webinar on February 18th. I’m going to be discussing my earnings edge with the co-founder of LikeFolio, Landon. The goal is to show you how to get your own earnings edge.

Leave a Comment

Up Next...

Coinbase IPO

Hey Five Star Trader, Today I want to talk to you about Coinbase. As of a few days ago, Coinbase announced it’s going public and it’s been making waves in the market ever since. But what is Coinbase, should you invest in it, and what are the risks involved? What is Coinbase? Coinbase was a … Read more

Read More

Chegg and Earnings…

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process … Read more

Read More

Google after earnings

Today I want to write to you about my thoughts on Google. Each quarter of the year traders and investors alike wait for the much anticipated FAANG earning reports to come out, and one of those reports comes from Alphabet (GOOGL). Earlier this month, when GOOGL released their reports, the stock promptly experienced a gap … Read more

Read More

Subscribe Today!

Want to walk the path to trading success together? Join Danielle’s “Five Star Trader” E-Letter for market insights, tips, tricks, and special bonuses.

Sign Up Now

Free Downloads

Squeeze Checklist

When you find a squeeze, check these boxes to see if you’re looking at a higher probability bet.

Risk Checklist

Before we can make money we must define the rules that define our risk parameters.

High Probability Plays in a Directional Market

Download Danielle's free eBook

10 Steps to Becoming a Successful Trader

Commit to becoming a successful Trader

Strategy Selection Risk Gauge

Danielle focuses on creating a constant stream of income through the selection of trend-following, directional plays.

Upcoming Appearances

Check Back for Upcoming Dates

all-as-seen-on-logos