The S&P 500 already closed the gap but with earnings, you know… you never know. It’s always a tricky event with risk, everyone’s got an opinion, especially us with ourself, and everyone’s got good explanations about why it should go up. Or why it would go down. Then when the report is out, it gets even worse as everyone tells the stock price what it should do. It can’t go down, the “report was so good”.
It reminds me one of the biggest lessons I learned about stocks and earnings: The ‘report’ is not the report itself (the revenue beat, the EPS, etc). The report is, in practical terms, the stock price reaction to the report. And nobody cares what you think the stock should or should not do.
So many people have a ton of hurdles that keep them internalizing this critical lesson. Some would lose a lot less if they did. Especially those that try to buy dips on a stock that surprises to the downside because “it went down too much” and the “report was great, the numbers are good, they beat.”
Nobody cares if they beat. 90% of them “beat”. It only matters if the beat is a SIGNIFICANT surprise and follow the stock price. Nobody cares what you think about the company or the stock. Not in earnings.
But many stock holders want to lower the risk when the company behind that stock they’re holding is about to report its quarterly earnings. And has not been there, right, long term stock holders? Even those that swing traded that baby, It’s relevant for everyone holding before earnings, at least to consider. So here goes…
Earnings Risk Mitigation for Stockholders
How to use the options market’s “expected move” to reduce risk without selling everything
Educational only. Not financial advice. Earnings are high-risk events, and gaps can exceed any estimate. If you are unsure, reduce size, talk to a qualified professional, or sit the event out.
If you have ever held a stock into earnings and thought:
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“Should I sell it all?”
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“Should I sell none of it?”
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“Maybe I sell half?”
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“I’m up a lot… but I don’t want to miss more upside.”
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“I’m up a little… but I also don’t want this to reverse and wipe me out.”
You are describing the most common pre-earnings dilemma.
Most people respond in one of four ways:
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Do nothing and hope.
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Panic sell all of it.
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Sell a random amount (often 50%) without a clear reason.
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Overcomplicate it with options they do not fully understand.
There is a better way: a simple, repeatable framework that uses one powerful input from the market itself:
The options market’s expected move (often estimated from the implied at-the-money straddle).
This article will walk you through it step by step, including a real numeric example using INTC as a case study. The goal is not to predict earnings. The goal is to control what happens to your P&L if earnings surprises you.
1) Why earnings is different from “normal” trading days
Earnings is not “just another candle.”
On normal days, price typically moves during regular hours, and your stop-loss can often function as intended (not perfectly, but reasonably).
On earnings:
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The stock can gap up or down after hours or pre-market.
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Price can jump over your stop. You might get filled far away from where you planned.
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Volatility spikes. Even if you are “right,” the path can be violent.
So before earnings, risk mitigation is less about “where my stop is” and more about:
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How big is my position?
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How much of my open profit is at risk?
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What move is the market pricing in?
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How much do I want to keep on as a runner?
2) The key tool: the expected move from the options market
What is the “expected move”?
A common way traders estimate the expected move for an earnings event is by looking at the at-the-money (ATM) straddle for the option expiration that captures the earnings release.
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An ATM straddle = 1 ATM call + 1 ATM put.
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The total price of that straddle is a rough proxy for what the options market is pricing as the move needed to break even over that time window.
Quick estimate (the version you can actually use)
If the stock is at price P and the market-implied expected move is M%, then the expected move in dollars is:
Expected Move ($) = P × M%
Example:
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Stock at $54
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Expected move 8.2%
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Expected move dollars ≈ 54 × 0.082 ≈ $4.43
So a rough market-implied range is:
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$54 ± $4.43
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About $49.6 to $58.4
Important:
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This is not a guarantee.
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The real move can be smaller, or larger.
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But it is an objective anchor that helps you stop guessing.
3) A realistic twist: using a fraction of the implied move
Many traders notice that realized moves are often smaller than the implied move, because option prices can include a volatility risk premium.
So you can choose an assumption like:
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Full implied move (100% of M)
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A haircut like two-thirds of implied (67% of M)
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Half implied (50% of M)
There is no magic number. The benefit is consistency: you pick a rule and apply it repeatedly.
In the INTC example below, we use:
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Two-thirds of 8.2%
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That equals 5.47%
4) The core concept: “profit cushion” vs “expected move”
This is the hand-holding part. Here is the entire logic in plain language:
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If you are in profit before earnings, you have a profit cushion.
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Earnings can move the stock against you by some amount (the expected move).
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You can sell (or cover) some shares to bank profit.
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You keep a smaller “runner” into earnings so you still participate if the move goes your way.
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The math helps you choose how much to keep, so the adverse move does not hurt much.
Define two simple numbers
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Profit cushion per share (C): how much profit you can lock per share by trimming now.
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Expected move per share (E): the dollars the stock might move (based on implied move).
Then you compare them.
If E is huge relative to C, earnings can easily erase your profit. You should keep less.
If C is huge relative to E, you have plenty of cushion. You can keep more.
5) The “napkin math” formula (works for longs and shorts)
This is the quick method you can do in your head.
Step A: Convert expected move to dollars
E = Price × ExpectedMove%
Step B: Calculate cushion per share
For a long:
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Cushion = CurrentPrice – EntryPrice (if you are up)
For a short:
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Cushion = EntryPrice – CurrentPrice (if you are up)
Step C: Keep fraction
A clean, practical estimate is:
Keep fraction ≈ Cushion / ExpectedMove$
Then:
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Trim fraction ≈ 1 – Keep fraction
This is not “perfect math.” It is intentionally simple and useful.
How to interpret it fast
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If expected move is 4x your cushion, keep about 1/4 of your position.
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If expected move is 2x your cushion, keep about 1/2.
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If expected move is equal to your cushion, you can keep about all and still have protection (though you may still trim for comfort).
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If you have no cushion (you are flat or red), the formula will tell you to keep very little if your goal is protection. That is a feature, not a bug.
6) INTC case study: trimming a position into earnings (short example)
This case study is based on a real-style trading situation many readers recognize: you have a position on, earnings is tonight, volatility is elevated, and you want to reduce risk while keeping a runner.
Trade context (simplified)
Assume a planned 100-share short idea, but only 2 of 3 entries filled, so you are two-thirds sized:
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Current short position = 66.67 shares
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Filled entries:
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Sell 1: 54.72
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Sell 2: 55.15
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Average entry (2 fills):
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(54.72 + 55.15) / 2 = 54.935
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The unfilled add order is canceled (you do not want to increase size right before earnings).
Plan change
You want to take a bigger-than-usual partial profit before earnings at:
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Partial cover at 53.92
Cushion per share
Cushion per share (short in profit) is:
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54.935 – 53.92 = 1.015
Percent move captured on that partial
Percent captured (relative to entry):
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1.015 / 54.935 = 1.85%
So trimming at $53.92 locks about +1.85% on the shares you cover.
IMPORTANT NOTE: Some traders wait to fill with a limit order BUT IF YOU DID NOT GET A FILL, then exit with a market order or closer limit order 10 minutes before the close, and do what you need to exit before the close.
7) Plug in the expected move assumption
You referenced an implied expected move of 8.2%.
For this scenario, we apply a two-thirds haircut:
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8.2% × (2/3) = 5.47%
Now convert that to dollars using the trim price (53.92):
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Expected move dollars:
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53.92 × 5.47% ≈ 53.92 × 0.0547 ≈ 2.95
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So the “two-thirds implied” earnings range is roughly:
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Up: 53.92 + 2.95 ≈ 56.87
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Down: 53.92 – 2.95 ≈ 50.97
8) How much do we keep into earnings?
Now apply the napkin math:
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Cushion C = 1.015
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Expected move E = 2.95
Keep fraction ≈ C / E:
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1.015 / 2.95 ≈ 0.34 (34%)
That means:
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Keep about 34% of the current position
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Trim about 66% of the current position
Since the current position is 66.67 shares:
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Keep: 66.67 × 34% ≈ 23 shares
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Cover: 66.67 – 23 ≈ 43.67 shares
That “keep 23” version is the near-flat plan if the stock moves against you by the assumed expected move.
A slightly more aggressive version (more downside participation)
You also asked for a plan that keeps “reasonable risk in play,” accepting a small loss if it gaps up.
So we choose:
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Keep 25 shares
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Cover 41.67 shares at 53.92
This keeps a bit more size for the positive scenario (down move after earnings) while still muting risk.
9) What does P&L look like in the two earnings scenarios?
Assumptions:
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Current short: 66.67 shares at avg 54.935
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Cover 41.67 shares at 53.92
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Keep 25 shares into earnings
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Earnings move scenarios from 53.92 are:
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Up to 56.87
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Down to 50.97
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Step 1: Realized profit from the trim
Profit per covered share = 1.015
Covered shares = 41.67
Realized profit:
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41.67 × 1.015 = +42.29
Scenario A: Stock gaps UP to 56.87 (adverse for the short)
Loss per share on runner:
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56.87 – 54.935 = 1.93
Loss on 25 shares:
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25 × 1.93 = -48.3
Total P&L (trim profit + runner loss):
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+42.29 – 48.3 = -6.0
That is the point: a small, controlled loss even if earnings goes against you by the assumed move.
Scenario B: Stock gaps DOWN to 50.97 (favorable for the short)
Gain per share on runner:
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54.935 – 50.97 = 3.97
Gain on 25 shares:
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25 × 3.97 = +99.1
Total P&L:
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+42.29 + 99.1 = +141.4
So you have:
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A muted loss if wrong
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A meaningful gain if right
That is exactly what “risk mitigation without exiting” should look like.
10) RR ratios: two useful ways to present it
There are two clean RR lenses you can teach readers.
RR Lens 1: Runner-only RR (simple and honest)
This measures the risk/reward of only the shares you keep.
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Runner risk per share (up scenario): 56.87 – 54.935 = 1.93
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Runner reward per share (down scenario): 54.935 – 50.97 = 3.97
Runner-only RR:
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3.97 / 1.93 ≈ 2.05R
That is a straightforward “about 2-to-1” setup for the runner.
RR Lens 2: Total position RR including the trim (the “event RR”)
This includes the fact you banked profit first.
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Total risk (up scenario): about 6.0
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Total reward (down scenario): about 141.4
Event RR:
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141.4 / 6.0 ≈ 23R
This number looks massive because the trim profit is acting like an internal hedge. That is not “free money.” It is the result of already being in profit and using that profit intelligently.
11) How a long stockholder uses the same exact framework
Let’s translate this to the most common reader situation: you are long a stock into earnings.
Long holder version (same steps)
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Find the expected move (M%)
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Convert it to dollars: E = Price × M%
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Calculate your cushion: C = Current – Entry
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Keep fraction ≈ C / E (cap it at 100%)
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Sell the rest before earnings, keep a runner
Example (simple numbers)
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You bought at 100
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Stock is now 110
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Expected move is 8% (E = 110 × 0.08 = 8.8)
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Cushion is 10
Keep fraction ≈ 10 / 8.8 ≈ 1.14
Cap at 1.00 (100%)
Interpretation:
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Even an expected down move still keeps you above entry, so you can keep more size if you want.
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But you still might trim if you do not want to give back a big chunk of gains.
Another example (the one that forces discipline)
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You bought at 100
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Stock is now 104
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Expected move is 8% (E = 104 × 0.08 = 8.32)
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Cushion is only 4
Keep fraction ≈ 4 / 8.32 ≈ 0.48
Interpretation:
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If you do nothing, a normal-ish earnings swing can erase your gains or put you red.
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If you want to reduce that risk, you would keep roughly half and trim roughly half.
This is exactly what most people try to do randomly. The difference is: now it is anchored to a market-implied number, not a gut feeling.
12) A quick rule for people who hate math
Here is the simplest version:
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Find your profit per share right now.
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Find the expected move dollars.
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Ask: “How many times bigger is the expected move than my profit?”
Then:
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If expected move is 4x your profit, keep about 25%.
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If expected move is 3x, keep about 33%.
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If expected move is 2x, keep about 50%.
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If expected move is 1x, you can keep about 100% (still optional to trim).
It is not perfect, but it is consistent and protective.
13) Common mistakes into earnings (and how to avoid them)
Mistake 1: Relying on stops
Stops help on normal days. They do not guarantee protection on gaps.
Fix:
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Reduce size first. Size is your real hedge.
Mistake 2: Adding right before earnings
Adding into a binary event is usually emotional, not strategic.
Fix:
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Cancel unfilled adds into earnings unless you intentionally run an event strategy.
Mistake 3: No plan for both directions
If you only know what you will do if you are right, you do not have a plan.
Fix:
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Write the up scenario and down scenario P&L before the event.
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If you cannot tolerate the up scenario, trim more.
Mistake 4: Holding because of “story”
Earnings does not care about your thesis in the short run. The first reaction is often positioning and expectations.
Fix:
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Treat earnings as a risk event, not a debate.
14) The main takeaway
Risk mitigation into earnings is not about predicting the print.
It is about answering one professional question:
“How much do I want to keep on, given the market-implied move, so an adverse gap does not ruin my week?”
If you remember only one tool from this article, make it this:
Keep fraction ≈ (profit cushion per share) / (expected move dollars)
Then adjust:
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Conservative: keep a bit less
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Aggressive: keep a bit more
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Always: keep it small enough that you can live with the worst case
15) Note for InvestingLive readers
The original INTC short idea discussed here was shared in our free Telegram channel. You are welcome to join:
https://t.me/investingLiveStocks
Always invest and trade at your own risk only. Good luck to Intel players before earnings in less than 2 hours. For those mitigating their risk, they don’t need as much luck.
Visit investingLive.com for more about stocks, crypto, forex, commodities, trading and investing education or our onging daily live feed for traders and investors.
This article was written by Itai Levitan at investinglive.com.