Corporations that are publicly traded must release their quarterly earnings reports, as per the law. These companies are supposed to release stock earnings for four times in a year, so that the shareholders would know the performance of a company. Traders refer to these periods as earnings season, which is the time when a lot of companies release their financial reports.
Most trading earnings revolve around a singular aspect called EPS or earnings per share. This is among the single most important attribute which investors take into consideration while making crucial financial decisions. Trading earnings means that the investors especially consider earning season to make short-term trading luck. Sometimes, it has been seen that traders would make good money just before stock earnings are released. Stock earnings are also released annually, but quarterly EPS reports tend to have more influence over share price and its movement.
Investors also often consider stock volatility to check if the stock is dwindling as it reaches its earnings date. A lot of investors are seen trading shares during stock earnings release depending upon speculations of earnings of a company. These stock earnings predictions are often dependent upon analysts’ consensus about stocks. Analysts can stipulate a company’s profit or EPS. This gives a foundation to the investors for trading earnings. It is during the earnings season that the investors focus how much proximity lies between reported EPS and consensus estimate.
Earnings calendar tells when a company will release the quarterly earnings. Traders must pay close attention to earnings report. Trading earnings is a popular activity of investors who look for quicker returns. Significant changes in share price are a result of missed earnings in comparison to estimates of Wall Street. In case the stock earning comes out better than speculation, the price moves north. In case the reported EPS is near to estimate, there won’t be much change in the share price. Such strategies are a work of art and science, which investors may pick on the go.
Trading earnings is mostly seen on price action day during trading time after stock earning has been released. Trading strategies often revolve around those stocks which are estimated to have missed consensus. Often it is also seen that businesses under-report their earnings before actual release date, so as to make their investors feel good about the EPS when it surpasses expectations. This gives a good boost to share price, after the actual report. Also, the tactic tends to have an effect on stock volatility in certain cases.
Trading earnings is also done on its earning history. One of the strategies involves finding those stocks which have been over-performing than the estimates on consistent basis for past quarters. In order to get involved in earnings trading, it is important for an investor to understand the pattern. A deep insight into earnings release dates, how consensus is created, how businesses forecast their EPS, and how well a stock performs on the basis of all these, goes a long way. However, the ultimate factor for trading earnings is an investor’s own analysis.
Traders tend to put to use spread strategies through put or call options in order to bring down the trade costs, while also increasing profit potential. Lower options cost defines that the profit on winner stocks could leave net profit, while also covering cost of options. Stock earnings are the among the most eligible factors, on the basis of which, traders can work up their portfolios. Trading earnings is a smart investor strategy. Having said that, it is also mandatory to have investor analysis done. A deep knowledge and understanding for trading earnings can give good profits to traders.
