What is the Best Way to Trade Earnings? Your Guide to Quarterly Earnings Report Trading Strategies.


By: Montana Timpson

Quarterly earnings seasons are some of the most anticipated points for the market during the financial year. They refer to the months when quarterly earnings reports are released — periods ripe with investor speculation, analyst predictions and the opportunity for big market moves.

Defining Quarterly Earnings Reports
A quarterly earnings report is a quarterly filing made by public companies to report their performance, including four key financial components: the company’s income statement, its balance sheet, its statement of cash flow and projected forecasts. Quarterly earnings reports provide investors with an overview of sales, expenses, and net income for the most recent quarter. Financial metrics often include net income, net interest margins, earnings per share (EPS) and earnings from continuing operations. Some quarterly earnings reports include a brief summary and analysis from the CEO or company spokesman, and some may feature comparisons to previous quarters or annual earnings reports. 

In the United States, all publicly traded companies are required by the Security and Exchange Commission (SEC) to file earnings reports quarterly. Each earnings season begins one to two weeks after the last month of each quarter, meaning earnings often roll into January, April, July and October. 

Quarterly Earnings Reports for Professional Traders
Quarterly reports are highly anticipated by professional traders as a measure of profitability of a company, often most highly reflected in a company’s earnings per share (EPS). Analysts use forecasting models, guidance and other fundamentals to determine estimated EPS, and the market uses these estimates to determine how a company will perform when the earnings are released. Earnings predictions tend to drive stock price action around the earnings release dates, as traders and investors focus on how closely the reported earnings match the consensus estimates.

Knowing the importance of those estimates can help investors manage through quarterly earnings results. A company’s ability to hit earnings estimates is important to the price of its stock. If a company exceeds expectations, share price often increases. If a company falls short of expectations, or just meets them, price often decreases, or barely moves.

Earnings Report Trading Strategies – Before Earnings
One earnings trading strategy rests on history and is predicated on buying stocks before earnings reports are released; in this buying scenario, professional traders look to target securities that have consistently beaten bearish estimates for several recent quarters. This strategy requires speculation that the trend of exceeding expected earnings will likely continue, and traders adopting this strategy often look to buy stocks or call options before earnings reports and sell on the news when the price jumps.

In a similar vein, if a trader believes a company won’t hit expected forecasts, they will often short the stock or buy put options.

Earnings Report Trading Strategies – After Earnings
Post-earnings strategies would involve evaluating price movements considering both earnings reports and forecasts. Traders may take a view that a stock may gap and extend or gap and reverse and will adjust their trades accordingly. Traders with a bullish view may buy stock or call options. Traders with a bearish view may short stock or buy put options.

For more professional trading insights, check out Lightspeed’s Active Trading Blog. For additional references, guides and resources, view our Trading Education Center, featuring a comprehensive glossary for professional traders, and register now for our next live webinar.

Active Trading with Lightspeed
Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account.

Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content are solely based on the users’ independent analyses taking into consideration your financial circumstances, investment objectives, and risk tolerance.

You may also be interested in...

The Dangers of Trading on Social Media Information
Read More
The IPOX® Week, June 21st, 2021
Read More
What Traders Need to Know About Naked Short Selling
Read More
The IPOX® Week, June 14th, 2021
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.

OK