Earnings gaps: the risk between two trading sessions
A gap appears when the next available trading prices differ from the previous session’s range or close. Earnings announcements can change investors’ expectations while the main exchange session is closed. Your position remains exposed during that interval.
Calculate the uncomfortable version
Suppose you hold 100 shares bought at $50 and planned to exit around $48. The planned difference is $200 before costs. After an announcement, the next executable price might be $43. Selling there produces a $700 loss before costs. A sell stop does not guarantee the planned $48 execution.
This example is hypothetical. It illustrates why a loss estimate based only on the distance to a line is incomplete for positions held through events.
Verify the announcement
Check the company’s investor-relations calendar, the date, the stated timing and any subsequent update. A third-party calendar can be provisional. Before-market and after-market announcements create different monitoring demands.
Use a visible events field in your workspace. Record whether holding through earnings was part of the original plan. Discovering the event after the move is a preparation error you can identify and correct.
Read both reported figures and forward guidance. The stock can fall after a strong historical quarter if expectations for the next period disappoint. Conversely, weak reported earnings do not mechanically imply a falling price.
In a rehearsal, calculate several opening prices below and above your planned exit. Include currency and fees. Decide beforehand whether those outcomes fit the capital you can afford to risk.