12 Keys to Trading Earnings for Profits

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#4 Why Does That Happen To Earnings?

Let's say the market is expecting a blowout earnings report from a particular company and many investors have purchased call options in anticipation of great earnings.

At that point, it becomes very hard for the company to impress the market and for the stock to climb.  Even if the company meets or beats estimates, most of the buyers are already on board.  So there's no one left to push up the price.

Investors who bid up the price of a stock or buy call options ahead of earnings don't take too kindly when a company merely meets estimates.  They want more.

Once the report is made public, if the stock fails to move very much, those who anticipated a big gain begin selling.  As other shareholders see the price falling, they too begin to sell. 

That's why knowing the true expectations of investors (as gauged by what people are actually doing with their money) is so important around earnings season.