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Market lesson: Why I don’t hold stocks through earnings

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The trade: I talked in a prior article about CF Industries Holdings (CF), an agribusiness stock I’m bullish on. Much as I love it, I will sell two-thirds of my position before the company reports earnings Nov. 1. This is my standard practice: If it’s a straight swing trade, or if I have less than a 10 percent gain, I sell the whole position before earnings. If it’s a long-term trade and I’m up 10 percent or more, I’ll sell between half and two-thirds.

See why Petra Hess is bullish on CF Industries and agribusiness

Why I do this: For me, trading is about probabilities. Earnings are a catalyst event and I have had too many of those work against me, so probabilities tell me to step aside, rather than being what I call a “stuck holder.”

A good example of this was Applied Optoelectronics Inc. (AAOI), which I once held as it gapped down 20 percent in one day. All of a sudden, I was 20 percent underwater. The stock never recovered; at the next earnings report, it gapped down another 17 percent.

On something like CF, I’ll take off two-thirds of that position, and bank a gain of roughly 20 percent. If it goes up or stays the same, I’ll look to add it back. If it gaps down slightly, there’s a chance I’ll add it back. Most of the time, however, if a stock gaps down, I walk away with a profit.

The bottom line: Trading, for me, is about keeping the money I already have and building on it. I see a lot of investors struggling to make the same money over and over again; that’s a mistake I don’t want to make.


Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs. At the time this article was published on RagingBull.com, she held 330 shares of CF (purchased Sept. 7 at $31.32) and was planning to sell 220 of those shares before the company’s Nov. 1 earnings announcement. She had no shares, options or open orders in AAOI.

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