Event Driven Trading

Use company investor-relations pages and SEC EDGAR for earnings dates and 8-K announcements, the Federal Reserve's FOMC calendar for policy dates, and BLS/BEA release calendars (plus Investing.com) for economic data (CPI, jobs report, PCE). Build your own watchlist of stocks and track their event calendars weekly.

It depends on your conviction and risk tolerance. Pre-event trading offers higher reward but requires conviction about the outcome. Post-event trading is lower risk as you see the actual outcome first. Many traders combine both - position before with part of capital, adjust after based on outcome.

Stocks are priced based on expectations, not absolute results. If the market expected 20% growth and actual was 15%, the stock may fall even though 15% growth is objectively good. The 'surprise' (actual vs expected) determines the move, not whether news is good or bad in isolation.

IV (Implied Volatility) rises before events due to uncertainty and 'crushes' (drops sharply) after the event when uncertainty resolves. If you buy options before events, IV crush works against you even if the stock moves in your direction. Consider spreads to reduce IV exposure.

Generally 1-3% of capital per event trade, with 1-2% for high-impact binary events like earnings. Maximum total event exposure should be ~15% of capital across all positions. Event trades have higher variance, so conservative sizing is important.

Check: (1) Options IV - high IV suggests uncertainty, (2) Pre-event price drift - has the stock already moved toward the expected outcome? (3) Options positioning - heavy call or put buying suggests a direction consensus, (4) Analyst revisions - recent upgrades/downgrades. If all point one way, the event may be priced in.

Straddles/strangles profit from large moves in either direction but are expensive due to elevated IV. Iron butterflies profit if the stock stays flat but lose on large moves. Calendar spreads can profit from the IV differential regardless of direction. Your choice depends on whether you expect a large move or not.

For announced deals: Merger arbitrage - buy the target at a discount to the offer, capture the spread as the deal closes. For M&A speculation: Watch for unusual options activity, executive changes, or industry consolidation signals. Post-announcement: Trade the acquirer (often dips initially) or the target (spread compression).

Yes. Macro events affect multiple stocks/sectors, so use index futures/options or sector ETFs rather than individual stocks. The impact is usually smaller per stock but more systematic (rate cut = banks up). Consider sector rotation (long beneficiaries, short losers) for balanced exposure. For binary macro events, defined-risk options help.

Build an event portfolio: Maximum 8-10 positions, no more than 3 in the same sector, no more than 2 in the same week. Track correlations - tech earnings in the same week are correlated. Allocate capital based on a conviction score. Keep a cash buffer for post-event opportunities. Review weekly.

Collect historical event data (outcome, surprise, price reaction). Engineer features: surprise magnitude, guidance change, pre-event momentum, IV percentile, sector context. Train a regression model (predict return) or classification (predict direction). Use walk-forward validation. Key: Ensure no look-ahead bias.

Depends on the sector. For retail: card data, web traffic, app downloads. For tech: app rankings, developer activity. For industrial: satellite imagery, shipping data. Start free: Google Trends, X/Twitter sentiment, job postings. Paid: Sensor Tower, SimilarWeb, data marketplaces. Always backtest before trading.

Before events, the term structure often inverts (near IV > far IV). Trade calendar spreads: sell near-term (high IV), buy far-term (lower IV). Profit from the differential crush when near-term IV drops more. Risk: Large moves can overwhelm the IV gains. Size conservatively and consider gamma risk.

For market risk: Index puts proportional to long exposure. For sector concentration: Sector ETF shorts or puts. For volatility: VIX calls if expecting a volatility spike. Dynamic hedging: Adjust as events resolve and new positions enter. Cost-benefit: Hedging costs money - only hedge material risks.

Use alternative data to inform conviction, not replace analysis. Process: (1) Traditional analysis gives the base case, (2) Alternative data provides confirming/conflicting signals, (3) Adjust conviction based on alignment, (4) Size the position based on combined confidence. Document which signals were useful for refinement.