An effective way to judge the performance of a certain business will be going through the earning reports that investors often rely on. This is released by publicly related organizations every quarter. This method of trading using Earnings Calendar is based upon the prediction of the earning reports received at the end of each quarter of the year.
While it’s not mandatory to trade before the report releases of a certain organization, trading after the release of the reports can also be fruitful to make profits at times. Investors often prefer to make short-term trading when a major number of companies release earning reports and profits on projecting on the reports. One thing to remember while trading is to check if there’s an increase in volatility of the stock at the time of the report release of a certain company.
Explaining Analyst Earnings Predictions
At the time of the earning season, it is recommended not to rely on the company news entirely as this can lead to any risk related to insider trading. Instead, it is rather better to focus on Wall Street along with the company news to avoid any risk as such. Many investors entrust on the predictions made by Wall Street that determine the stock price during the release dates of the earnings.
The amount of the profit and sales that a company will report are generally estimated by analysts in Wall Street and the average of the predictions for a particular company is known as the consensus estimate. Most of the traders and investors take the consensus estimate into consideration while trading during the earning season.
Trading Based on Historical Data
For a successful trade, most of the investors rely on their intuition that is mainly based on the historical data of a certain company. As an investor, you might want to invest in those stocks that have been performing well which means the profits have crossed the estimates of the analysts several times to avoid any losses.
Another crucial matter to keep in mind is to believe in your instinct and determine if the trend will follow this time as well and based upon that notion buy the shares before the release and sell those when the prices go up after the disclosure of the earnings reports.
The Instability of The Earnings Expectations
While most of the stock price action happens on the trading day after the earnings report has been released, the earning from trade can depend upon many factors including the comparison of the actual reports and the Wall Street estimates.
The stock prices can go high if the actual earnings perform better than the estimates. Similarly, if the company profits do not meet the estimates it can affect the share price drastically as well. Following the same pattern, if the earnings resemble the estimate the share prices stay almost the same.
In many instances, businesses intentionally announce an understatement of their earnings so that the investors can feel that the stocks performed better than they expected. All the trading strategies that most investors follow revolves around the ‘hit-or-miss’ aspect of the earning estimate.
Determining Trade When Big Prices Move
You will come across two options while going for a share including a call where it lets you profit if a certain share price is going up and puts where you can gain if the prices fall. In case you are able to predict an earning price move but are unsure in which direction the prices might go, you can buy both calls and puts so that you can avoid the risk of facing a loss.
buying both the options will enable you to access you to get stock as well as selling it in a certain time frame and a certain price which in other terms known as a “straddle”.
As the options can expire without any such changes in the price and can put you at risk to lose on both sides, traders often make strategies on these options to lower the trade costs. A lower-cost ensures to cover the cost of the options as well as providing a net profit.