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Synopsis
Whether you are a trader or an investor, the earnings season is equally important. For traders, it is an opportunity to trade as stock prices move up or down sharply. For investors, the earnings season is one of the checks and balances they need to apply to figure out whether what the management has been projecting is actually happening or not. Another point worth noting: Earnings seasons are usually volatile, and there is something which makes them so. What is that something? Which stocks are going to be volatile on the day earnings are announced? The answers depend on many factors. While many of them cannot be tracked, some can be. Prices are not reacting to the absolute number; they are reacting to the surprise relative to what was priced in.
Volatility and the earnings season go hand in hand. There are enough instances where a slightly lesser-than-expected number in a quarter has led to a big erosion in the market cap of a stock. Also, a slightly better-than-expected number could lead to a sharp jump in stock prices and addition to market cap. Why does this happen? And earnings season doesn’t just report the past; in a way, it resets the future. That is why prices often fluctuate
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