Roll the Dice and Hit a Lick

“If I don’t come back in an hour, tell my children I love them” my O.G yelled. He slammed the door, threw the car in drive and drove off before I could protest. When I realized the heaviness of his words my heart paused. I quickly realized the risk involved in this play was life or death. It could only mean the payoff had to be huge.

The plan was in motion… Fifteen minutes after the hour passed and I began to worry. All I could think was that we were just shooting the breeze like any normal day. I knew he was about to head on a run but nothing seemed out of the ordinary until he said those words.

45 minutes after the hour, I began to feel sick on my stomach with the thought of the worst. I certainly didn’t want to bury my mentor and be the one to have to tell his family that he risked his life over some money.

Fifty-Five minutes pass the hour; my phone finally rang. I heard a familiar laugh followed by the words “open the door, I’m here”.  I stopped holding my breath and opened the door. We proceeded to count the twenty-two grand he just scored on the kitchen counter. My O.G rolled the dice and hit a lick. But was it worth it?

When it comes to earnings trades you really are taking a risk just like my O.G. took back in the streets. Don’t get me wrong it’s not life or death but they are total crapshoots at best. There is no strategic edge in playing earnings. You roll the dice and win big or lose even bigger. Are you willing to lose it all over the jackpot?

I often remind new students to never participate in holding trades through earnings. The risk is too devastating and you can quickly end your trading careers with a blown account. The aftermath can leave you with such a fear that you dare to never enter the trading realm again.

So what exactly are earnings and why would someone be crazy enough to trade them?

Every quarter company’s give a public announcement to talk about the amount of money they have made or lost in comparison to what they said they would make for that quarter. Typically, when a company outperforms its projections the investors rally, buying up a bunch of stock and the underlying stock value can make a violent move higher. If a company does not meet their goals, then the underlying stock normally drops drastically, investors lose confidence and sell off.

But this isn’t always true. In fact, we have seen many times where companies beat earnings and have a major sell off. To see this for yourself look at how Citigroup (C) stock responded last week after its earnings announcement. This is the perfect example of being right and losing money.

The truth is you can make a super large amount of money if you are right and the market responds positively. It could be your jackpot play. But heed this warning and don’t go in blind. Earnings trades can figuratively be your ticket to-get-rich-quick or your one-way ticket to the homeless shelter.

Occasionally I will join the Russian roulette earnings craze, but I cannot recommend them for you to do because of the uncertainty and random violent moves. This is not trading; it is pure gambling. Trust me when I say it is not for the faint of heart.

Even with the most sophisticated software you could buy, no one has an edge in trading earnings. So don’t believe the hype.

If you are one that likes to gamble… I say go for it. Just make sure that you understand your max risk and be willing to accept that outcome without jumping off a building.  With that I will close by saying, don’t be blinded by the jackpot, ensure you have a plan B to cover your potential loss and happy trading Wallstreet Jackboyz and girlz.

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  1. Pierre, this article on EARNINGS really sheds light for me. This answers many of my questions concerning this major EVENT. Very well put together including the opening “drama”!

    ~Terence Warren Clayton

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