In our trading portfolio, we usually increase our short position in market futures just before the earnings season starts. As you know, the market often overreacts to perceived negative news, especially when companies report earnings. These situations create single-stock liquidity gaps, and we want to take advantage of them when the odds favor a quick return to more normal prices. Having a short market position in our back pocket helps us exploit the liquidity gaps without increased market exposure.
In these setups, assessing the degree of overreaction is paramount.
On October 18, Apple (AAPL) reported earnings that beat the Street estimate nicely. The stock proceeded to drop from 318 to 296 in the after-hours market. We used this opportunity to lean against our $SPY short and buy $AAPL below $300. We unwound $AAPL on October 19 at around $312.
In these setups, assessing the degree of overreaction is paramount.
On October 18, Apple (AAPL) reported earnings that beat the Street estimate nicely. The stock proceeded to drop from 318 to 296 in the after-hours market. We used this opportunity to lean against our $SPY short and buy $AAPL below $300. We unwound $AAPL on October 19 at around $312.
Here is our Twitter stream related to this situation:
What are the methods you use to put yourself in a position of strength?