Trading Earnings Release

High Volatility, Fundamental Bias and Price Delivery

Hi guys, been a while I shared any major report on the macro economy, I haven’t had any drastic change in my views and continue to monitor incoming macro data. Moreso, my positions haven’t changed significantly:

Above are the trades I am running, some I executed since Jan, the recently established positions were also shared on the substack chat:

In this report, I will be sharing my model for trading/not trading earnings release in the equities market. Yesterday, I had a trade on for earnings release and I was on the wrong side of the tracks due to certain variables, of course, I don’t like losing lol, so I had to work on completing my model to effectively and systematically trade earnings release.

First of all, earnings volatility are seen as a period of making immediate massive gains on a stock, as opposed to the daily slow gyration in stock movement, the allure of this makes people participate in taking a bet on this volatility event that could swing either way and could cost you at least 8-10% of your invested capital within 1-5mins. I obviously do not want to be that kind of trader, so had to study all earnings release price action and how to effectively trade them, if there is a need to participate in them, and I hope you also find this useful.

The Model

Earnings release takes place between two trading windows only:

• Pre-Market Trading Hours

• After-Market Trading Hours

Fundamental Bias:

The first component to trading earnings release is to first understand the sentiment around the stock or the industry of the stock as a whole. The three factors to focus on during earnings release are:

• Earnings Performance vs Expectations

• Core Financial Line Items Performance that the market is concerned about (Expected vs Actual)

• Forward Guidance

The above three variables are all that is needed to build a fundamental bias. For example taking the technology sector this year, due to DeepSeek release there was a broad concern for justification of increased CAPEX spending, as a result, despite Earnings Performance exceeding expectations, the Core financial line item in focus was CAPEX, because this was unchanged some of the tech stocks sold off during the earnings release.

EEB Bloomberg Function

To be succinct, the matrix for fundamental bias is as follows:

Please note that this does not exhaust all the possible combination, potential bias and how that could impact the direction of price movement on earnings release. The general idea is that as the data comes out, you need to quickly discern what the sentiment could be for the stock based on the fundamental variables outlined.

The fact is except if you have an algorithm that scrapes these data super fast and make decisions on sentiment and execute on, you most likely can’t position for the initial volatility as the data hits the market. So you are left with two option:

• Position few minutes before

• Position few minutes after

Both choices have their pro and cons. For the first choice the downside is if you are long and the initial impulse move is bearish you could lose a lot of money vice-versa if the initial move is in your favor. The second choice on the other hand let’s the initial impulse prevail then position after that primarily, after also immediately reviewing the result.

I honestly understand the allure of trading few minutes before the data, if you are right you make a ton of money, if you are wrong you also lose. Sounds like a gamble.

Trading Pre-Market Earnings:

This is where the rubber hit the road.

To trade Pre-market earnings release the focus is on the price action between these specific time window 6:50 - 7:10am, note all time are in EST. We expect pre-market earnings to be released by 7:00am, but this is how liquidity and positioning flows in:

• 6:50 - 6:55am: This is where we see traders/HFT algos position in before the earnings release, also where you can position in, if you believe you won’t be slammed by a truck at full speed.

• 7:00 - 7:05am: This is where we get the first impulse move once the data hits the market, and it is characterized by high volatility, with a widening of bid-ask spread.

  • If you are not positioned prior to this time, you most likely won’t get filled or your fill would be terrible.

  • Alternatively, if you are not interested in risking your capital for the impulse move, and you wish to take some minutes to digest the data, then skip this window and watch what price does

• 7:10 - 7:30am: This is where we either get a reversal or continuation setup

  • The algorithms digest the data, alongside other traders then we see more trades/liquidity flow in

  • If you are interested in getting in this is a safe window to put in a trade

• 8:50 - 9:10: Positioning into NY Open

  • Here we see some effect of rebalancing and hedging as we move into the cash market open

• Execution Window: Time windows to explore taking a trade setup in

  • 6:55am - 7:05am: If you intend to participate in the impulse move, not recommended

  • 7:10 - 7:30am: If you intend to participate after the initial volatility and digesting the fundamental data

  • 7:50 - 8:10, 8:10 - 8:30am and 8:50 -9:10 am to position into the NY-Open

Example: MCD 0.00%↑ Pre-Market Earnings:

If you walkthrough the notes shared above, I layered the time window, and you can see the fingerprint of how price is delivered and how to navigate trading the earnings release. The same process apply for after market hours, the only difference is the timing.

Trading After-Market Earnings:

To trade After-market earnings release the focus is on the price action between these specific time window 3:50 - 4:10pm. We expect after-market earnings to be released by 4:00pm, but this is how liquidity and positioning flows in:

• 3:50 - 3:55pm: This is where we see traders/algos position in before the earnings release, also where you can position in, if you believe you won’t be slammed by a truck at full speed.

• 4:00 - 4:05pm: This is where we get the first impulse move once the data hits the market, and it is characterized by high volatility, with a widening of bid-ask spread.

  • If you are not positioned prior to this time, you most likely won’t get filled or your fill would be terrible.

  • Alternatively, if you are not interested in risking your capital for the impulse move, and you wish to take some minutes to digest the data, then skip this window and watch what price does

• 4:10 - 4:30pm: This is where we either get a reversal or continuation setup

  • The algorithms digest the data, alongside other traders then we see more trades/liquidity flow in

  • If you are interested in getting in this is a safe window to put in a trade

• 5:50 - 6:10: Positioning into NY Close

  • Here we see some effect of rebalancing and hedging as we move into the cash market open

• Execution Window: Time windows to explore taking a trade setup in

  • 3:55am - 4:05pm: If you intend to participate in the impulse move, not recommended

  • 4:10 - 4:30pm: If you intend to participate after the initial volatility and digesting the fundamental data

  • 4:50 - 5:10pm and 5:50 - 6:10pm

Example: HOOD 0.00%↑

Above is the time window delineation on RobinHood earnings release that took place this week. Yes you could have missed the initial 8% move, but if you were short you could also have lost 8%, but if you probably waited after the initial impulse, evaluated the fundamental data and build a rationale for a sustained run higher, an execution could take place during each time windows to position for the trend.

This is all on my earnings volatility trading model. Cheers.