For those of you toying with plays for the remainder of earnings season, one idea comes to mind: the after-hours hedge. This isn't just limited to after-hours, though, as premarket works just as well. But the idea here is to focus on adjusting your position outside of normal trading hours.
GT Advanced Technologies (GTAT) is a great example once again. Whether it's a long straddle buy of the $13.50 or $14 strike, or even August 8 $15 lottery calls, the stock traded up near $16 last night in after-hours trading. It offered an opportunity for long buyers or price volatility players to lock in gains. By price volatility, I'm referring to a position looking for a big move in price if one is long straddles or strangles, not a position with the thesis that implied volatility will increase after earnings, since we know the opposite is usually the case.
I've gone round and round with folks about missing follow-through by shorting stock against long calls or straddles, but here is my thought: You can always make a trade on the open to pursue that thesis. GTAT is an example of that as well. The stock has definitely been one to follow-through with the initial move after the open, so why couldn't I just buy stock or more calls at the open if I didn't want to miss the move higher? I can, but by shorting stock against the calls in the after-hours, I removed the overnight risk of a big miss on Chinese data that cause the SPDR S&P 500 (SPY) to gap down -- theoretically, of course. And how many call buyers would have loved to short Michael Kors (KORS) stock in the premarket yesterday when it was up in the double digits?
This doesn't just hold true for earnings. A trader can use this approach against the SPY or the Nasdaq-100 (QQQ) if the futures swell or tumble outside normal trading hours. In the end, it comes down to the fact that this is not the environment to be a hog. Even being a pig is tough; too many people love bacon. Don't be the bacon other traders love to eat. Stay within yourself and take caution with the overnight moves until a trend re-emerges.