Event Risk — Earnings, Elections & Binary Moments

The binary-event problem

Earnings, FDA decisions, elections, central-bank meetings: outcomes are DISCRETE and the move is a GAP (day 4) — stops cannot protect inside it. Options pricing reveals the market's expected move (the straddle price ≈ the expected ±%); trading the event means betting you know better than that consensus, with gap risk either way.

The professional stances

1) Reduce or exit before the binary event if the position is large relative to the expected gap. 2) Hold through ONLY if the thesis is multi-year and the event cannot invalidate it (a great business missing one quarter). 3) Trade the REACTION, not the event: the first hour after news is where information settles — entering before is gambling on direction, entering after rides the resolved information.

The earnings checklist

Before any earnings in a held position: the date (confirm), the options-implied move, your thesis's dependence on THIS quarter (does a miss break the 5-year case?), and your pre-declared action for each outcome. Deciding DURING the print is deciding with the worst brain chemistry available.

Sources

• Earnings Season StrategiesInvestopedia
• Implied Volatility & Event MovesCBOE education