Shorting Selling Stocks Into Their Earnings Report – Should You Do It | Podcast Episode #42

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Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market.

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If you will learn to trade better trait, smarter and profit figure. Now let’s go trade. Hey everybody, this is. Was Ryan Mallory with a swing trading podcast, doing an episode on a person that I met just a couple of weeks ago and I’ve been sitting on the story for a while because well, first of all, I didn’t really think about using it in a podcast, but I think it’s a pretty relevant story and I wanted to share with you guys today, just so that it might be a valuable experience for you guys going forward.

0:51
And so, Below. My office is, there’s this bar. It’s really really good place. They serve some unbelievable food and you got sit down. They have a bar, which is usually where I sit at, because usually I’m working late at night and I go down there. And I will grab something to drink or just make a dinner out of it.

1:10
But any case I’ve got to know a lot of people down there and it’s a good group of people that work there from the bartender’s to the people who are cooking a meals and all hey, case, I bet this one guy and he found out that I traded stocks, and he heard about my company, shareplanner.com and he wanted to come out and talk to me.

1:31
So he does and we hit it off and you know, he’s done things like with crypto and and all these other trading vehicles. But he seems like he has a good head on his shoulder and he’s really trying to make something of his trading and trying to really, you know, become a profitable Trader at that.

1:49
Now, He came to me one day, and this was earlier this month, beginning of March and he said, man, I just I really screwed up. Not sure what I’m supposed to do here. I said, what did you do? He says, I shorted Gap and earnings, you know, he was looking at like the price action lately of Macy’s and some of these other traditional retailers and thought.

2:11
Okay, Gap is probably going to blow their earnings and go straight down. Well they didn’t and I can’t remember what cause Gap to go up and for those following, the ticker symbol, it’s GPS. But they went like from 25-ish all the way up to over 30 and Beyond.

2:32
So first thing I tell the guy say, Hey look, You can’t short earnings, it’s just a disaster. If you’re going to play earnings play to the upside because you just don’t know what kind of news that could come out that could cause just a massive push to the upside that that you’re not expecting.

2:51
So there’s so much more risk. Like what if they just come up with some novel idea or what? What if it was like a couple of years ago when these companies were announcing blockchain? Like some of these companies that are just really faltering and they were trying to find a reason to stay in business, they would turn to blockchain and they’re Talk would go up like a hundred or two hundred percent.

3:09
Could you imagine being short on those kinds of news events or earnings events? Where they were? They make that known and it would just be petrify. My knew it would kill your Capital. So that’s one reason why you definitely don’t want to short and earnings is just because there’s so much that can go wrong and the opportunity for upside is so much greater than to the downside.

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I mean, what would it take for a stock to drop 60% and to its earnings. I mean, it would have to be just a really, really, really bad earnings report. I mean, it does happen. But I mean, it would just have to be very miserable but an earnings report, that drives the stock, 60% hires far more likely.

3:51
And even though these are, like, way outside the Norms of earnings, I’m just saying that a stock can go up 60 percent, and it’s much more likely for that to happen than a stock to go down 60%. And also when I say this to I’m not advocating that you play earnings either to the long side or short side. I’m just saying shorting stocks and earnings is by far one of the worst things that you can do.

4:09
So GPS puts this guy in a really peculiar position here because he’s short it, right?

4:25
And what he should have done. Well, he would been far better off doing in hindsight is shorting after their earnings because this thing did it went from like 25 30 or so all the way up to plus 31, following the earnings report and then it started giving it back that same day and ever since then it’s been down, it’s gone.

4:45
Now it’s gone from a high of over 30 1 to 25 33. So if you didn’t believe in the company wait until after the earnings. Yeah, it could have got down and you would have just missed Stout on the play. But that’s okay. There’s always another trait out there. But GPS actually did give you a short set up, but it happened after the earnings event.

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When it gave you, this huge shooting star candle and then it’s been selling off ever since. So, the rule play was for Gap was too short, it after earnings. Now, I wouldn’t have taken that that trade. I’ve been, I’ve been following it since he told me that story just curious as to what it’s been doing.

5:17
And I’ve been fighting the whole thing a little bit fascinating. But yeah, the big lesson for this guy is Don’t shorten their earnings. I don’t know if he sold it or not. I haven’t talked to him since but I’m that’s gonna be the first thing I asked Miss. Hey, did you what did you end up doing with that that short position hindsight, hopefully he held on to it?

5:37
My advice would have been for him at the time. Is to go ahead and sell it just because you don’t know where that thing’s going at this point. You’ve got unbelievable amount of loss on your hands already and the prospect for it to go from 31 to 35, or 240 is very possible.

5:53
The markets been rallying And for almost all of this year so you can’t you can’t really risk it. So when I evaluate a stock eyes to whether I should buy sell it or not or two covered, in this case a short position I have to look at it from a risk standpoint because you have to manage the risk.

6:11
Now that doesn’t necessarily mean that the resulting price action is going to work out in your favor. For instance, yesterday, I did not like the bearish engulfing candle pattern on Netflix. I went ahead and got out of the position. Today’s it’s up like over. %. I made a decision based on risk, not as to what might happen today in the sense that.

6:32
Oh, but it could go up today and it did. But when I made that decision to sell Netflix, yesterday, I had to make that based off of risk. I didn’t like the candle pattern, it was showing signs that it may actually reverse course and keep going lower. So, I’m trying to guard my risk. I get out of the position, obviously, a Stock’s not bound to do, whatever.

6:50
Exactly. It is that you want it to do. And so, in this case, Netflix, Way up today would love to have been holding it still, but I’m not. So it’s It’s part of trading we look at a stock whether we should buy or sell it or whether we should close apposition out or not based off of what if it keeps going higher or I’m short it what if it keeps going lower in the thought of it, playing out the way you originally had hoped, it would have played out.

7:18
Can keep us in two positions or trades that we should not be have stayed in in the first place. So GPS, perfect example of why you should not short a stock into earnings Because when you do that, you are setting yourself up for just massive amounts of risk.

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And it’s not worth doing that to yourself, so your trading. And they’re your success at trading is not going to be measured by one successful trade, but your success or failure at trading can be measured by one horrible trade.

7:54
And so we’re getting into trades because we want to be super profitable. We want to make lots of money, but at the end of the day, Going after these High, Flyers or these pie-in-the-sky trade setups, and being successful. At it or making a profit off of it is not going to be what defines your trading career.

8:12
But like I said, you blow out account because you got it into a very bad trade situation that can Define you. So you need to look at it from that angle and that you can’t, you can’t trade in a situation that setting you up for massive amounts of loss.

8:29
And when you’re shorting in our earnings per share, Particularly, very volatile stocks. Let’s face it. If you short Apple. Yeah, you can still lose a lot of money shorting in earnings but you’re not likely to see a huge move against you to the upside. As you would say GPS that has just fallen so much over the years and now you go shorting into earnings and it any kind of bit of good news.

8:53
Can really send the stock through the stratosphere or if you go into some of these micro Caps or small cap stocks, they C 60 to 100 percent moves or more. If if everything works out you know and the Bulls favor or against your short position.

9:10
So don’t don’t get into a short position ahead of earnings because in the grand scheme of things it’s just not worth it. And as for my friend downstairs who shorted Gap into earnings well hopefully he learned himself a pretty valuable lesson and one that will work for him, you know, positive way.

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For many years to come, that’s going to be it for today. If you have any questions, I’d love to hear from you, hit me up, email Ryan at shareplanner.com and if you want to trade with me everyday, man, definitely check out the shear pointer Trading Block. It’s great for learning how to trade in a good and profitable way.

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And one that manages risk, so that it’s not blowing out your account or working against you. I hope you guys have a wonderful week. Thank you. God bless. Thanks for listening to this week’s podcast of Swing trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the financial markets every day with Traders from around the world.

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With your membership you’ll get a 7 day trial access to my trading room and text and email alerts. So go ahead and sign up by going through shareplanner.com, Trading Block, that’s www.shareplanner.com/trading-block.

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And follow me at SharePlanner on Twitter and on SharePlanner’s, Facebook page, where I provide unique market and trading ideas every day. If you have any questions, please feel free to email me ryan@shareplanner.com or call the office at 321-522-6733 all the best to you and God bless.