Earnings
Definition
An earnings report is the quarterly financial disclosure a public company files with the SEC, revealing revenue, earnings per share (EPS), profit margins, and forward guidance — it's the most significant regular catalyst for individual stocks, and the gap it creates on the morning of the report can define an entire trading week.
Example
“The stock was up 18% pre-market after reporting EPS of $2.14 vs. the $1.87 estimate — a $0.27 beat with raised guidance for next quarter. That combination is the cleanest earnings catalyst. I waited for the pullback to VWAP and traded the continuation.”
Detailed Explanation
Earnings season happens four times per year as companies report quarterly results — typically in January, April, July, and October, with S&P 500 companies concentrated in a 3-4 week window each quarter. The two most important numbers are EPS (earnings per share, the profit per share after taxes) vs. Wall Street's consensus estimate, and revenue vs. the revenue estimate. A "beat" on both typically triggers a gap-up; a "miss" on either triggers a gap-down. But the forward guidance is often even more important than the headline numbers — a company can beat estimates and still fall if it guided lower for the next quarter.
For traders, the earnings setup is about the expected move embedded in options pricing (the implied move) vs. the actual move. Before earnings, options traders bid up implied volatility to price in the uncertainty of the event, creating an implicit ±X% expected move. If the stock moves less than expected, volatility sellers win. If it moves more, volatility buyers win. Many experienced traders specifically target earnings plays by either selling premium before (collecting the IV that gets crushed post-announcement) or buying straddles if they expect a larger-than-expected move. Knowing the implied move before you trade an earnings setup is non-negotiable.
Day traders who trade stocks after earnings are essentially trading the market's reaction to new information. The first 15-30 minutes after a big earnings gap are the most volatile and often least reliable — the initial reaction is filled with both genuine institutional repositioning and retail FOMO. Many experienced traders let the first candle form, identify VWAP, and wait for the stock to either hold key levels and continue or fail and begin to fill the gap. The cleanest setups come after the initial chaotic volatility settles and a clear directional bias establishes itself against a logical, clean level.