opening large positions the day before earnings

Discussion in 'Trading' started by lsudaytrade, Sep 1, 2003.

  1. Does anyone here open large positions on a stock the day before it report earnings?

    I've done so only once(been trading since Feb 03') with success but didn't like the feeling at all since the trade can go against you big real quickly.

    ANF report monthly sales on Thursday. Perhaps looking at opening a 3K share position before the close on Wed. Typically, my trades are 1-2K shares.
     
  2. Do you have an edge in predicting what that news will be? Unless you've got an insider feeding you information or you've been able to divine something from, say, the options market, I think you are buying a lottery ticket.

    If your "edge" is that other stocks in the same sector have been reporting good news, or that the market is strong, what do you think are the chances that info is already baked into the current price?
     
  3. What do you base this type of trade on? Are you looking for a sell the news thing or anticipating a miss or going long in hopes of a blowout report?
     
  4. I am basing my trade on current SSS trends for ANF which has and always been dismal. A trade of this type would be a hit or miss like gambling.
     
  5. How about you hedge the position with options? That way, at least you won't be totally screwed if you're wrong. And you'll make some $$$ if you're right.

    -FastTrader
     

  6. Thought about that, but I have never traded options before nor do I have an options account.

    A wrong call can easily cost me a point and set me back $3K+.
     
  7. That's not a very convincing reason not to hedge your position with options. It would only take you a few hours to learn the basics of options, and how to use them to hedge against your stock position. It's actually pretty easy. As far as the acct. goes, I think it's worth it to open an options acct. if it can save you $3K on a single trade. That's why I like IB; I can trade stocks, options and futures through a single platform.

    -FastTrader
     
  8. JT47319

    JT47319

    Earnings plays are for amateurs, imo.

    Go for the anticipatory "up/downswing" and THEN play the reaction.

    Buy the rumor, sell the news. In other words, you should have already positioned yourself to take advantage of the trend going into earnings, taken profits, and then re-establish said position once earnings are out.

    Here's a link to an equities trader who's strategies are based on earnings:

    http://www.marketgems.com/
     
  9. You get nothing unless there is a surprise.

    I don't see a way to trade an earnings strategy, unless it pits you against the direction of price (probably wise to use price relative to markets/industry) in the two weeks previous to the announcement; or, you're better at predicting earnings than all of the analysts (doubtful). A strong move in the direction of your trade indicates the markets are already discounting it and they tend to over react, so you're more likely to get a strong move against the trend than with it.

    That's good advice about options. This is a highly volatile approach to stocks and you should look at ways to stabilize performance. If the markets are discounting a small surprise and get a big one instead, you can get killed.

    If you don't learn options then don't make this a core strategy or consider holding cash to stabilize performance. I do mean "highly volatile."
     
  10. Change "get nothing unless there is a surprise."

    Should say that you probably get a move against any anticipatory (preceding 2 wks) move.
     
    #10     Sep 2, 2003