For those that trade earnings reports – whether it be with a pre-earnings trade or post-earnings – the reaction by investors is often not what you would have expected yourself. Because of this, I have found that having a trade design that gives you flexibility (for when you are wrong) is paramount to keeping a good probability of success.
In the case of $GES I had elected to play a wait-and-see view to just trade it post-earnings. It had a nice positive reaction but I noticed that it stalled rather quickly which is something I see in “to fade” stocks that I like.
I elected to go short the stock in the after hour action and then the following day I added an element that helps to take some of the pressure off the trade: a Bear Collar. Here are the specifics:
- I am short stock
- I am short the September 29 Puts
- I am long the September 31/33 Call Spread
Below is a chart that shows the 3 levels that are in play for this Bear Collar. Any move below the $29 level and the short stock position is capped. Any move above $31 may cause me to evaluate closing the short stock position – thus seeing the Bear Collar turn into a regular Risk Reversal trade.