Free course · Earnings · Intermediate
Beat, Raise and Still Drop: An Earnings Reaction Course
An earnings reaction course for anyone who holds stocks through their reports. It works through what the release is measured against, what the guidance really says, how big a move the options priced, and what to do the morning after.
Who it is for
Traders and investors who hold stocks through quarterly reports and want to understand why the reaction so often disagrees with the headline.
By the end you can
- Measure a quarter's EPS and revenue against consensus as a percentage beat or miss
- Compare a new guidance range with the old one and with consensus, at the midpoint and at the ends
- Price the move the options market expects by adding the at-the-money call and put
- Recheck a position after the gap by asking whether you would buy it today at the new price
The lessons
- 01 What an Earnings Release Reports and What It Is Measured Against
What an earnings release reports, from revenue and GAAP or adjusted EPS to margins and guidance, and how each line is measured against consensus estimates.
About 13 minutes, with a quiz at the end
- 02 Reading Earnings Guidance: Ranges, Midpoints and Raises
How to read earnings guidance: compare the new range's midpoint and ends with the old range and with consensus, and see why a raise can still disappoint.
About 13 minutes, with a quiz at the end
- 03 The Earnings Implied Move and the Size of the Reaction
The earnings implied move, read from the at-the-money straddle before a report: how to work it out, what it prices, and why options buyers can lose on a big move.
About 13 minutes, with a quiz at the end
- 04 Post-Earnings Drift, Gaps and Rechecking a Position
Post earnings drift and reversals after a gap, and how to recheck a position with the new numbers: is it worth buying at today's price?
About 12 minutes, with a quiz at the end
“Reports record quarterly revenue; raises full-year outlook.” That’s the headline on a hypothetical company’s earnings release, and the stock opens 7% lower the next morning. Anyone who holds stocks through reports has watched some version of it happen, and the explanation is rarely a mystery once you know what the release was measured against, what the guidance range implied next to consensus, and how big a move the option chain had priced before the call even started.
Who it suits
The course suits traders and investors who hold positions through earnings, whether for a swing trade or a long hold. It’s pitched at intermediate level. You should already know what EPS, revenue and a P/E ratio are, and you should be able to find a strike, a bid and an ask on an option chain without help. Nothing more advanced is assumed.
What to have open
Pick one company and keep its pages together. You want its latest earnings release, from the investor relations page or the filing, and the consensus estimates from your quote page’s earnings tab as they stood before the report. Add the option chain for the first expiration after the next report date.
Real examples beat hypothetical ones here. Each lesson works its sums on a made-up company with round numbers, and then asks you to run the same sums on the release in your other tab, where the numbers are messier and the lesson sticks.
How to work through it
In order, since each step leans on the one before. The measuring comes first, then the guidance, then the option market’s estimate of the move, and finally the decision you face after the gap, when the stock has already jumped or fallen and the question becomes what you’d do with it at today’s price. Each lesson closes with a short quiz. If a question trips you up, reread the worked sum above it before moving on.
Plan for about an hour, and longer if you work your own release alongside.
What it leaves out
Accounting in depth is left out, since the lessons read the release and skip the full filing. Options strategies for earnings, such as selling premium into a report, are left out too. The implied move appears only as a measuring stick. And nothing here tries to predict which way a stock will gap, because nobody can do that reliably, and a course that pretended to would teach you to size positions for an outcome you can’t know.
Where to go after
The what mattered in that quarter quiz tests the reading skills on fresh hypothetical reports. The entry on earnings estimate revisions covers what analysts do in the weeks after a report, and the case for sizing a position held through earnings by the gap turns the implied move into a position size, with the earnings gap loss calculator to run the numbers. The earnings hub has the rest.
People also ask
Why do stocks fall after beating earnings estimates?
Usually something else in the release fell short: revenue missed while EPS beat, raised guidance still sat below consensus, or margins narrowed. A stock that ran up into the report can also carry hopes above the published consensus, so a modest beat lands as a disappointment.
Do I need options experience to follow an earnings reaction course?
Only enough to read an option chain. You find the strike nearest the stock price in the first expiration after the report and add the call and put prices, which approximates the move the market expects. Nothing in the material asks you to trade options.