Managing gap-down risks during earnings season for stocks


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This thread is relevant for those who trade stocks. I had painful experience with huge gap-downs when a company announces their earnings and the earnings results disappointed the markets. Even when the earnings looked wonderful to me, the stock can sometimes still drop in double-digit percentage. Stops are useless against gap-downs of such magnitudes. The gap-down magnitude is particularly huge for U.S stocks due to Regulation FD (Fair disclosure).

This is the dilemma I have. If I sell every stock in my portfolio before earnings are announced, I will never get wonderful gains because wonderful gains are reaped when a trader holds his position long enough. Furthermore, the stock can also experience huge gap-up on earnings outperformance. If I don't sell stock before earnings, stops don't work and I cannot think of any other risk management measure against the gap-down risk.

This is certainly an issue worthy of risk management. Can the experienced traders here advise how they manage this painful risk? Thank you very much.

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