Fulltime Options Trader Shares Earnings Failure Strategy!

Finance-focused summary

The interview centers on an equities options/earnings strategy called “earnings failure”: trading the price reaction to earnings—and especially the post-earnings price action—rather than the earnings “beat/miss” itself. The trader argues that markets often position into/around earnings, and that when price moves in the opposite direction of “good” earnings, it can signal crowding/position liquidation and create a favorable risk/reward profile—typically best when the move confirms quickly (ideally within the first few sessions).

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Key concept: “Earnings Failure” framework (price action, not news)

Core idea

• Earnings can be “good,” yet the stock gaps up and then reverses, losing the initial move and continuing lower (and vice versa for “bad” earnings).
• The strategy is to trade the failure of the initial market reaction.

Method / step-by-step (as described)

1. Identify the immediate reaction (first minutes)

   • Use the early tape (e.g., first ~15 minutes) to judge whether algos are treating earnings as bullish or bearish.
   • Example cue: if a stock dumps ~9% in the first 15 minutes after “good” results, the market likely expected even better.

2. Check persistence into the next session

   • Prefer reversals that hold overnight.
   • Avoid setups where the reversal is undone within a couple hours (strategy becomes “murky”).

3. Use the “previous day close” as the key level

   • For shorts: if price closes below the previous day close, that’s the trigger to manage/exit the long (and vice versa for longs).
   • The trader also references using this close as a stop reference.

4. Entry style

   • Often enter partial intraday as price breaks through a relevant level.
   • Take full position only if an official earnings-failure is confirmed (defined as a close back through/above the prior day close, depending on trade direction).

5. Trade management / timeframe

   • Emphasis: best results work quickly.
   • Dislikes trades that go nowhere or require “weeks.”
   • Rule-of-thumb expectation: the setup should work within the first 3 days; longer delays reduce confidence.

6. Sector / relative strength filter

   • Check whether the stock is moving in relation to the broader market/sector (e.g., chip stocks vs ETF/sector weakness).
   • Look for sector rotation signals:
     • Earnings failures may cluster within the same sector and can indicate rotation—helpful for riding trends rather than fighting them.

7. Risk sizing

   • Risk about 1% to 3% per trade, scaled to how clear the setup is.
   • More risk is used when the downside/upside has no plausible explanation from earnings analyst commentary (up to ~3%).

8. Options overlay (risk control / slippage mitigation)

   • Uses option spreads to reduce slippage effects and avoid long-dated theta drag.
   • In illiquid names, may prefer shares because options can lack liquidity—though shares introduce gap risk.

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Explicit tickers / instruments mentioned

Equities / tickers

• SanDisk (ticker not explicitly stated)
• Micron (MU)
• Intel (INTC)
• Nike (NKE)
• United Health (UNH)
• Home Depot (HD)
• PayPal (PYPL)
• CAG (explicit)
• Carter (CHTR)
• Nvidia (NVDA)
• Samsung (no ticker given)
• Google (no ticker given)

Market / sector context

• Mentions NASDAQ (no specific ETF named)
• Mentions S&P (short by “CMR”; index name only—no ticker given)
• References an ETF being down in the Intel example (ETF not named)
• Mentions the Homebuilders sector (no specific ETF named)

Instruments

• Options (calls/puts/spreads), shares, and “positioning” concepts (no specific contracts/expiries stated)

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Examples and key takeaways (directional + some numbers)

SanDisk — earnings failure (short setup concept)

• Context: stock was higher before earnings.
• Post-earnings:
  • Initial dump of ~9% within the first ~15 minutes.
  • Continued weakness into overnight.
• Trade logic: look for later push back above the previous day close as confirmation of an “earnings failure.”
• Stop concept: typically uses the previous day close as the exit/stop reference.

Micron (MU) — success initially, then “failure later” (short setup concept)

• Earnings and call initially push the stock up.
• More weight placed on conference call/guidance than headline numbers.
• Overnight “down” is defined as the call reversing from green to red in the overnight session.
• Confirmation: closing below the prior pre-earnings close by July 1.
• Outcome described: “Super good short.”

Intel (INTC) — gap up, but fails to hold

• Intel is up about ~2% overnight while the chip group/ETF is down ~3–4% overnight (suggesting earnings must be extremely strong just to hold).
• After Intel lost the previous day close, shorting begins intraday (entry described around $97).
• Reinforces: earnings-failure trades should work right away; the longer it takes, the less likely to work.

Nike (NKE) and UnitedHealth (UNH) — failures that “don’t work”

• Setup appears, but the stock goes nowhere / stays in a range.
• Exits because the trade wasn’t working promptly.

Home Depot (HD) — clearer miss / better signal

• Scenario: HD “missed altogether” (missed guidance).
• Stock gaps lower, then reverses higher.
• Sector filter: Homebuilders strength/turning up helped.

PayPal (PYPL) — downtrend stock; gaps up but rejects

• Favorite structure described:
  • Stock trending down → earnings gap up → price rejects gains → continues lower.
• Notes social sentiment (e.g., Stocktwits) as a bullish sign while the tape goes against it.

CAG — long via earnings failure during a market sell-off

• Setup: gap down on July 15, then trades higher; by the second day it becomes an official earnings failure (reclaim confirmed).
• Catalyst evidence: analyst price target cuts (examples referenced: lowered 13 from 18, and other cuts like 14 to 12, 17 to 16).
• Outcome: approx +11% move while the broader market was dumping; position taken/trimmed as momentum returned.

CHTR (Carter) — long via highly short-interest earnings failure

• Extremely high short interest: ~30%.
• References analyst downgrades, including a debt shelf filing and “super bearish new news.”
• Stock: gaps lower, then moves higher and stays near highs for the month.
• Notes it rarely works, but can produce squeeze outcomes.

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Pitfalls / cautions explicitly stated

• Don’t let macro bias override tape

  • The trader admits limiting or trading against moves due to “market bias,” but learned to follow the earnings-failure direction when the tape confirms.

• Trades must confirm quickly

  • If it doesn’t work within the first few days, confidence drops; dislikes “hoping” for multi-week resolution.

• Range-bound / no-trend stocks reduce effectiveness

  • If there’s no clear trend (e.g., Nike consolidation), earnings failures may fail to break through.

• Slippage and gap risk

  • With shares: gap risk can be severe; he cites potential ~-15% overnight risk in illiquid/smaller names after unforeseen releases.
  • With options: worst-case may be capped, but liquidity can still be a problem.

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Disclosures / disclaimers

• The subtitles contain no explicit legal “not financial advice” statement.

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Presenters / sources mentioned

• Jason (host/interviewer)
• Martin (“the edge,” associated with CMR / CMR Discord / CMR web page)
• External reference: “unknown market wizards”