How To Trade An Earnings Gap With Options
The first earnings season of 2023 has come to a close and it was a lucrative one. Earnings season is always a great time for active traders. This is a time when publicly traded companies are providing updated information about their financials and trajectory.
Though, as traders, why should we care about a company’s fundamentals?
We don’t.
The reality is that when a company releases new fundamental information, it brings an audience to the stock. Meaning that the stock will trade with high relative volume, and stocks trading on high volume are simply easier to trade. It's always important to keep an eye on the earnings calendar as you don't want to miss these opportunities.
That being said, it’s not enough to watch any stock that has recently reported earnings for a trade opportunity. Not all setups are created equally, and when you factor options into the mix, the list of potential opportunities gets narrower. If you need help filtering through the noise and deciding what post-earnings stocks are worth trading, join us in the Trader’s Thinktank where you’ll find the highest probability setups posted every morning in our Premarket Prep notes.
An overnight gap in a stock
One of the most lucrative trading setups following earnings is something called the Earnings Gap. This is a strategy that everyone should have in their Trading Playbook. A gap in a stock occurs when a stock’s price jumps between the close of one candlestick and the open of the next. Typically, this is seen on daily charts when a stock opens at a very different price than the price at which it closed the day before. Depending on the quality of the setup, this is a trade that can make your week. We frequently trade the Earnings Gap for 100%, 200%, and 300% gain or more.
Important to note that all of these trades took place after the earnings report. There is no gambling through earnings or using multi-leg complex option strategies here. To learn more about this strategy and the setups to use, watch the trade recaps below, where we detail the exact setup, entry, exit, and logic behind it all.
BYND Post-Earnings Trade Review - 170% Gain
If you would like a deep dive into the Post-Earnings Gap trade, as well as many other strategies that I regularly use, sign up for the Options Mastery Course.