Such Thing As Too Much Action?

Hey 5-Star Trader,

Over the past few weeks, I’ve written about the market moves of earnings season (you can catch my latest article on Roku here). These opportunities are unique because they are calendar-based, which often need to be timed within a certain week of each quarter.

With all the juicy action that’s being passed around on silver platters, it can be easy to dive in head first, but I implore you to study the overall account risk you’re willing to take on with such trades. With every contract that is bought, we take on a certain amount of risk and even the best traders don’t sport a 100% win rate. So this begs the question… How do we maximize earnings opportunities while mitigating risk?


Here is how I spread my risk through earnings season…

  1. Paying attention to expirations.
    I recommended not having all your trades expire in the same week. For example, an appropriate way to handle trades could mean you have some overnight trades, some expiring next week, and some the week after. They should never all be expiring within the same week.

  2. Not being afraid to hop in and out of a trade.
    I like to continually get into trades, and continually get out of trades, on a rolling basis over the course of the quarter. Holding them for too long can get volatile leading up to or right after the report. Instead, if I see a chance to take profits, I generally take it and then on to the next trade.

  3. Understanding how Facebook, Alphabet, Amazon, Apple, and Netflix (FAANG) reports are crucial.
    I urge traders to be especially careful during the week of FAANG earnings. This is often when the indexes are trading at their highest and the market is ripe with volatility. By the time this week rolls around, you should try to be out of all your prior “run into earnings” trades.

  4. Knowing who is reporting.
    Be cautious of what sectors are reporting vs. what you’re holding. The results of a company’s report could affect your earnings trades or the overall market even if they are not for the same company as your holdings.

Earnings trades can be volatile, but they are also extremely lucrative so if you know how to mitigate your risk, there is opportunity to take advantage of this action every quarter!

For more earnings season education, take my class, “Quarterly Profits Formula.” There I teach you the setups of earnings trades, along with market behavior during this volatile time.

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