The earnings playbook.

Earnings is a known storm front. You can see it on the calendar weeks ahead. You can't predict whether the storm will be mild rain or hurricane-force; nobody can, including the analysts whose entire job is predicting it. The framework's job isn't to forecast the storm — it's to make sure your portfolio is the right size for whatever lands. Lesson 6 covered the gap-distribution math; this lesson is the operational layer. Three rules cover almost every case: fully exit, hold a quarter-size starter, or replace the equity exposure with options. Pick one before earnings; execute on Friday close; don't change the plan in the after-hours session when the print drops.

The default refusal — and why it exists

The pre-flight chain refuses new entries within 3 sessions of an upcoming earnings date. The reason is the math from Lesson 6: a 2× ATR stop is a 2× ATR stop only when the market is trading. Earnings night opens 3-8× ATR away on a regular basis. The "1% risk" position you'd open the day before earnings is potentially a 3-5% loss the morning after — five times the budget your math is supposed to enforce. The framework's default position: don't enter into a known gap-risk window unless you've explicitly chosen to and sized for the gap, not the stop.

The catalyst chip on every audit card surfaces the upcoming earnings date. When it's within the 3-session window, new entries refuse at preview. Override exists; logs to journal. The journal review almost always shows that override-into-earnings trades have wider distributions than baseline — either much better or much worse, with no edge in expected value, only added variance.

The three operational rules

For an existing position approaching earnings, three options. Pick one Friday before the earnings week; execute on the trading session before the print.

Rule 1: Full exit

Close the position before earnings. Re-enter (or not) after the print resolves and a new structural setup forms. Best for: positions where the underlying thesis was a structural read (level + R:R + trend), not an earnings catalyst. The earnings event is noise relative to the thesis; sitting through it adds variance without adding edge. If the post-earnings price is still at a confluence level with R:R clear, re-entry is mechanical. If not, the framework just refused the next entry on its own.

Cost of full exit: missed gain if earnings prints positive and you don't re-enter quickly enough. The framework's view: that's the cost of insurance. Earnings is a storm front; you don't pay for insurance only on the days the storm hits.

Rule 2: Quarter-size starter (skin in the game)

Trim to ~25% of full Sports Cars sizing (so 12-15% normal becomes 3-4%). Carry the small position through earnings. The reduced size means the worst-case gap is survivable; the small remaining exposure means you participate in a positive surprise. Best for: positions where the earnings event itself is part of the thesis — you have a directional view and want to keep some optionality.

The math: if normal size is 15% with a 2× ATR stop, a positive earnings gap of 5% on the 15% position gives 0.75% portfolio gain. The same gap on a 3.75% (quarter-size) position gives 0.19%. You give up 0.56% of upside. Negative gap of 5% on the 15% gives 0.75% loss — but on quarter-size, only 0.19% loss. You gave up most of the upside and most of the downside. That's the whole trade — variance reduction.

Rule 3: Options replacement

Close the equity position. Replace with a defined-risk options structure (long call for bullish view, long put for bearish view, or a vertical spread for limited risk if directional but uncertain on magnitude). Best for: high-conviction directional view where the binary nature of earnings makes options' asymmetric payout match the trade thesis better than equity does.

This is the Lesson 25 (Advanced) territory in detail; here the rule is just: if you're going to take earnings risk, options often do it more efficiently than equity. A long call costs the premium and caps the loss at the premium. The same dollar exposure in equity has a worst-case loss limited only by gap size. For a binary event, defined-risk usually wins on cost-per-unit-of-exposure.

What to never do

• Don't add to an existing position right before earnings. The pre-flight refuses this for the same reasons it refuses new entries. The override almost always loses on expected value.
• Don't average down on a losing position into earnings. The position was supposed to be "1% risk." After two days of decline + an earnings storm, it's structurally a different trade than the one you opened.
• Don't change the plan in the after-hours session. If you decided Friday to fully exit Tuesday before earnings, exit Tuesday. Watching the after-hours print and "deciding then" is just front-running your own emotion. The plan was the plan.
• Don't pick the rule based on what the stock did last earnings. Each earnings is independent. A name that gapped +12% last quarter is roughly as likely to gap −8% this quarter as anything else. The historical reaction pattern is a much weaker signal than retail traders treat it as.

Reading the catalyst chip

The dashboard's catalyst chip on every audit card surfaces:

• Days to next earnings (color-coded: green >7d, amber 3-7d, red ≤3d)
• Pre-flight gate state (CLEAR / WARN / REFUSE) for new entries on this name
• Implied move from at-the-money options if available (a market estimate of expected magnitude)
• Earnings time (BMO = Before Market Open, AMC = After Market Close) — affects whether you have a session to react before the gap

The chip is the visual anchor for the playbook. When it goes amber, plan the rule. When it goes red, execute it.

Implied move — useful, with a caveat

The "implied move" derived from at-the-money options on the day of earnings is the market's volatility estimate. A name with a 6% implied move means options are pricing roughly that magnitude in either direction. The number is a useful sanity check on your sizing — if the implied move is 8% and your position is 15%, your worst-plausible loss is around 1.2% portfolio. Whether you can absorb that depends on your drawdown budget (Lesson 15).

The caveat: implied move is the average case. Earnings prints can break much wider than the implied — guidance cuts, leadership changes, regulatory news in the call. Size for 1.5-2× the implied move as a stress test, not the implied itself. The framework's options-pricing surfaces show you both numbers; sizing should respect the wider.

What the framework does

• Catalyst chip on every audit card with days-to-earnings and pre-flight state
• Pre-flight refusal within 3 sessions on new entries (configurable threshold)
• Trim suggestions via the Pillar Coach narration when held positions cross the 5-session window — surfaces the three rules with framework-recommended choice based on thesis type and conviction
• Implied-move chip from the options book showing market-implied magnitude alongside historical earnings reactions

The real lesson

Earnings is the most predictable storm in trading — you can see every print weeks before it happens. The framework's job isn't to predict the storm; it's to make sure your portfolio is the right size for whatever lands. Pick a rule before the earnings week. Execute it on the trading session before the print. Don't change the plan in the after-hours panic. Most of the worst trades retail traders take happen in the 90 minutes after an earnings print, when the screen is moving and the brain is reacting; the framework's discipline is to have already decided what to do before that window opens.

Related: L6 — gap distribution math · L20 — macro regimes