Planned risk
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Calculator · Earnings
Earnings gap loss calculator
Enter your account size, the shares you hold, the price and your planned stop. The earnings gap loss calculator compares the risk you planned with the loss an overnight gap would cause, and works out the position size that keeps a gap of your choosing inside a limit you set.
Planned risk, % of account
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Loss on the sizing gap
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Size for the gap limit
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The working
Planned risk and gap risk
Planned risk is the distance from your price to your stop, times the shares, and it assumes the stop fills where you put it. A gap skips that assumption. When a company reports after the close and the stock opens far lower the next morning, the stop turns into a market order at whatever the first trade is, so the loss is set by the size of the gap: price times gap percentage times shares. The table runs that sum for 5%, 10% and 20% moves, each set against the risk you planned. Sizing turns it around. Take the dollars you're willing to lose, which is the account times your limit. Divide by the loss per share at your sizing gap. Rounded down, that is the most shares you can hold into the report. The earnings gap entry covers how these moves form.
A worked example on the defaults
You hold 500 shares of a hypothetical stock at $80 in a $60,000 account, a $40,000 position. The stop at $76 puts $2,000 at risk, or 3.33% of the account, which looks tidy. A 5% gap opens right at the stop, and the loss matches the plan. A 10% gap opens at $72 and costs $4,000, 6.67% of the account and twice what you meant to risk. A 20% gap opens at $64 and costs $8,000. That is 13.33% of the account, four times the plan. If you want a 20% gap to cost no more than 2% of the account, $1,200, you can hold $1,200 / $16, which is 75 shares. The case for sizing a stock by the gap when holding through earnings rests on exactly this sum.
What to check before the report
Find the report date and whether it lands before the open or after the close; filtering an earnings calendar to your holdings makes that quick. The option chain gives an implied move for the report, and the lesson on the earnings implied move shows how to read it, though a single report can run past it. The gap percentages here are applied to the price you enter, so use the last close if the entry was some time ago. Gaps also go up. A short position loses on an upside gap by the same arithmetic, with no ceiling on how far the stock can open. After the open, post-earnings drift can keep the move going for days.
Questions about this calculator
Does a stop-loss order protect you from an earnings gap?
Only up to the opening print. A stop becomes a market order once the price trades through it, and after an overnight gap the first trade can sit well below the stop. A position stopped at $76 that opens at $64 is sold near $64. A stop-limit order sets a floor on the price but may not fill at all, which leaves you holding the shares.
How big can an earnings gap be?
It varies by stock, and there is no fixed ceiling. The options market's implied move before a report gives a rough idea of the size traders are pricing, and the stock's own reactions to past reports show its history. Size for a gap well past the implied move as a stress test, because a single report can run beyond both of those guides.
What position size keeps an earnings gap loss small?
Divide the dollars you are willing to lose by the loss per share at the gap you are sizing for. With a $60,000 account and a 2% limit, that is $1,200. A 20% gap on an $80 stock costs $16 a share, so $1,200 / $16 allows 75 shares, against 500 held on the default inputs.
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