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Only about 8.5% of the S&P 500 companies have reported third-quarter earnings so far. Of them, 74% beat their estimates, both on their top and bottom lines.
But in my 30 years of trading, I've seen plenty of instances like this, where even after a good earnings report, the stock gets hammered by 10%, 15% – even 20% – in a single day.
And it happens because of bad guidance given by the Wall Street analysts.
Now, they'll try to tell you which way a stock will move before the announcement comes out…
But the truth is, they don't know any more than your local mail carrier does.
The good news is… you don't actually need to know.
You can cash in on any company's earnings report – good or bad – using two simple strategies.
And both of them offer unlimited cash potential…
Unleash the Power of the Straddle and the Strangle – and Never Miss Out on Profits
Third-quarter (Q3) earnings season unofficially kicked off last Wednesday, with Alcoa Corp. (NYSE: AA) reporting an earnings miss of $0.72 on $3 billion in revenue. Expectations were for $0.75 per share on revenue of $3 billion, and revenue fell 43% from Q3 last year – despite meeting expectations this year. That caused a slight drop in the stock (from $37 per share to $36 per share), but it climbed back up to $38 per share (as of the time of writing).
You might think that an earnings miss would've affected this stock much more, but there were no real dramatic price moves. Some stocks experience huge moves – for better or for worse – depending on the earnings report, analysts' "guidance" about what to expect ahead of earnings, or a combination of both.
Take disk drive maker Seagate Technology Plc. (Nasdaq: STX), for example…
STX crushed EPS projections by $0.10, and the stock skyrocketed 12% or more on the pre-market open and pretty much stayed there for the rest of the day.
If you were bullish and held STX over earnings, then you had a good day. If you were short or were only holding long puts through earnings, you might be left wondering what you were thinking.
But there are plenty of cases where stocks don't fare well due to earnings, like Whirlpool Corp. (NYSE: WHR), which reported EPS of $3.83 on revenue of $5.4 billion. Consensus estimates were for EPS of $3.90 on $5.5 billion in revenue.
Here's what happened to the stock shortly after…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.