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                                                                                                                                                                                                                                                                                                  Wile many traders love to trade through earnings and some even make money doing it I prefer to stay on the sidelines and let things work themselves out before I commit capital. I have played many trends into and after earnings but have rarely ever held through earnings. It feels to much to me like gambling,  we just have a 50/50 shot to be right about a big move. I prefer to trade with an edge and not bet on red or black on the roulette wheel.

5 Reasons I Don’t Hold Through Earnings Announcements

  1. The risk of being wrong is not worth the potential reward of being right. If companies make earnings they are rarely rewarded much but if they miss the move down can wipe out months of gains.

  2. It is difficult to use long options to capture moves through earnings because moves are already priced into the option chain with implied volatility pricing with Vega. That Vega premium that is most of the extrinsic value in at-the-money options will be gone the next morning whenoptions open to trading, it has to be replaced with intrinsic value to be profitable, not an easy task. 

  3. If the stock gaps up after earnings you can then buy into that momentum play and use the low of the day of the gap as your stop loss to follow a new possible trend.

  4. If the stocks gaps down and bounces you can still go long at a much more favorable level than before earnings.

  5. If the stock drops after earnings you can play the short side if it closes at the low of the day.

What ever happens I prefer to skip holding through earnings and prefer to buy in afterwards if I like what I see.  It is also wise to wait to close to the end of day after earnings to let the stock work itself out if you are looking to catch a trend.