Lesson Overview

How Many Earnings Trades

If you thought that the logistics of making profitable earnings trades was different then making our regular monthly income trades you were wrong.

Making lots of earnings trades also is a requirement of your ability to trade successfully over long periods of time. This also reduces your risk that 1 company blows out earnings and gaps much higher creating a huge loss.

So this means that you need to be making more earnings trades each month with a smaller position sizes so that the probabilities have a chance to work themselves out over many different occurrences.

More Discussion

Was This Helpful? Add Comments/Questions

  • Awesome great to hear Jhun!

  • Jhun

    I understand. Small but frequent. Love to do Earnings cause capital is not tied to long. My capital is not to much so been using iron condors more often in most of my trading.

  • Rich B

    Question on Earnings trades in a small account: due to the predominantly short time in most earnings trades, a smaller account would be limited in doing only a few at a time, to not invoke round trip issues right?

  • I tend to favor waiting to make a trade until earnings. If the IV is likely to stay high I don’t want the directional risk between now and then holding the position. Make sense?

    • ido9876

      Thanks Kirk…

  • Yep I would wait if you are planning to sell options. It’s not worth the risk because eventually IV will fall but likely not until the earnings event itself.

  • You could BUT only if the long legs are not worth much since you still lose that value.

Show Video Transcript +

In this video, I want to talk about just the number of earnings trades that you need to be making on a quarterly basis and really, the frequency in which you need to be trading if you want to take advantage of doing earnings play.

I think the first thing that we need to start with obviously is you have to decide early on before earnings season really starts if you have the time and have the ability to make a lot of these earnings trades because they’re not like most of the trades that we make in our portfolio where we can hold them for a month or a couple of weeks.

Earnings trades are going to be a little bit different because they do require a little bit more attention because you will have to be entering them closer to the end of the day and then will have to be trying to manage them or adjust them early as soon as the stock opens and get out of the trade or make an adjustment.

Because of that, you first have to decide if you want to do it. If you do decide that you want to make a bunch of earnings trade which we feel is in your best interest because earnings trades can be very profitable, they give us a great opportunity to trade implied volatility.

Then you’ll obviously have to apply the same type of logic as you do with regular trades and that logic is that you have to make a lot of small trades so that the probabilities work themselves out over time.

The way that we trade earnings is that we like to trade them outside of the expected move which you’ll learn about further down in this course and this module on earnings trades.

As you learn about expected move, you'll remember that it encompasses about a 68% probability range. If we’re trading outside of that range, most of our earnings trades are going to be around 70% probability of success, but that doesn't mean that every single trade that we make is going to be a winner.

We’ll show you some of the trades that we’ve made over the course of this week just at the time of this recording of the video, but we won’t always have winning trades.

But the more trades that you make and the smaller that they are in size, the more likely you are to hit that 70% probability of success that you’re shooting for.

That's why we tell you that about how many trades you should be making, really you should be making as many as you can within the guidelines that we’ve already laid out, highly liquid, pretty good pricing, great strategies.

There’s so many you can trade, but you don’t have to trade all of them. On the screen here, this is just a look at all the stocks that potentially have earnings that are going to be announced either before the market or after the market in all of the coming days.

You can see that in some days that we have next week, there’s almost 100, 200 and 300 stocks that are going to be announcing earnings over the course of a couple of days, so there’s a lot of stocks to choose from.

You don’t have to trade everything. We feel like you should be in a couple of trades every day. Today at the time of this recording is Friday, and we were in three trades today, two yesterday and the day before.

So we’re starting to ramp up here and really, we won’t trade any more than maybe five or six in a given day just because there are a lot to manage, and even if we’re doing this full-time and watching the computer and the market, there’s just so much to manage and a lot of orders to manage.

But that feels like it can give us enough repetitions and trades to make the numbers work out in our favor. Make sure you pick and choose stocks and options that are highly liquid. That helps narrow down the window of different trades that you can make.

As we go through, I just want to give you an idea of how active we are in some of the trades. This is looking back 14 days from today, and this encompasses all of the trades that we’ve made here at Option Alpha.

You probably can’t take advantage of any of these because this video will be older by the time you watch it. But you can see that we’ve made earnings trades in MON, and you can see we made one on 1/6 and then closed it out the next morning on MON.

We sold it for a $.61 credit, the next morning, bought it back for $22, so we made a nice little profit there. In BBBY, we had sold a strangle at $77, bought it back the next morning for $50, so a nice little profit there.

You can see it’s just a matter of doing small sizes. You can see even our sizes right now are very small, we’re only doing one contract or two contracts at the most.

And then we go up and later on in the week; we started being a little bit more aggressive with some of our earnings trades as far as the number.

We had a Citigroup trade where we sold it for $57, bought it back the next morning as soon as it opened at $20, and then just today, we had a lot of trades that we had opened, the other day, SLB, an iron condor and then INTC which is Intel, Goldman Sachs, all of these.

You can see we then came right back the next day and bought all of these back rights after the open in the morning for nice little profits both in Intel, SLB and Goldman Sachs.

We’re being pretty active with the number of trades that we’re putting on, but you can see that the number of contracts and the size of these positions is fairly small. We’re not shooting for $900 per trade. We’re shooting for $75 and $30 and $100. That’s what we’re trying to target, these small amounts that add up over time.

Hopefully, this just gives you an idea of how active you need to be about making earnings trades. It’s got to be a decision that you make upfront in the earnings season. You can’t whimsically come in and out of the market here with earnings.

You got to be either fully committed or not. If you're not, that’s okay; we can do other strategies. But if you are committed, then you have to learn the mechanics of how to do it right.

As always, I hope you guys enjoy these videos. If you have any comments or questions, please ask them right below on the lesson page. Until next time, happy trading!

eBook Download

The "Ultimate" Options Guide

Ultimate Options Strategy Guide

The step-by-step guide on how to set up each of the top 18+ options strategies we trade to generate monthly income. Read the whole strategy guide in less than 30 mins and have it forever to reference.

Download PDF

Join More Than 47,345 Members

Membership is always free & you can upgrade anytime to unlock our live trades.