From Our July 2015 E-mail Archives: At the time of this post, the markets are in the thick of Q2 2015 earnings announcements. Last week, we received a question from one of our traders about earnings and data services. Our Head Trader, Robb, answered the question.*
-----Original Message-----
From: Jay P.
Subject: Earnings Plays - Data Services?
Good evening,
I wonder if there are any recommended data services (whispernumber.com, earningswhisper.com, stocksearning.com, etc.) to support playing earning trades (ratio backspreads, straddles/strangles, verticals, etc.).
Any insights appreciated.
Thanks.
Jay
-----Reply Message-----
I used to be a news hound and would search all over for news, reports and commentary. I actually used to listen to conference calls as well after earnings reports. In the end, I realized that no matter what research I did or commentary I studied, the stock ended up doing exactly what it would have if I hadn't done any of that research.
In fact, I finally realized that all of the research that I did actually "convinced" me that it was going to go up or down. This caused me to stay in losing trades too long since I was "convinced" from my research. So, now I don't do any research other than plan out my entry point, risk parameters and exit points.
The options premiums will tell you the expected movement up or down. You can do this by looking at the front month at-the-money (ATM) straddle and make your decision to play a short volatility or long volatility play. Or, you can choose to lean bullish or bearish with a ratio backspread. All of this will be based on risk/reward analysis and not on the "news" of the stock or what the analysts think is going to happen.
In this way, you are no longer playing your hunch, guess or "well researched opinion." Rather, you are now playing odds and placing yourself in positions where the losses are minimal when you are wrong and the wins are big when you are right.
Over 1,000 times that you make an earnings trade, the move of the stock will be random in the end. So, it really comes down to putting yourself in positions where the risk is less than the reward.
Hope this helps.
Thanks,
Robb
* NOTE: Some original wording has been modified for legibility.
