After the Close our desk had a spirited debate about whether a trader should have a position before an announcement (in this case the oil and gas number). On Tuesdays we meet after the Close to watch video of One Good Trade produced by a few of our experienced traders. One of our most improved traders, let’s call him MIT, presented his One Good Trade in which he spotted an Unusual Hold on the Bid before these numbers were about to be released. So he got long. The number was announced, XTO traded up about 80c, and MIT made a chop. Well was this a good trade?

MIT argued that he spotted an Unusual Hold on the Bid, and he could exit if this bid dropped within no worse than 8c. Some challenged that it is never a good idea to take a position before a number. They reasoned that it would be difficult to exit for a small loss if the number contradicted your position. Why take the chance?

One of our very experienced traders, JToma, made a compelling argument against this trader’s position. JToma offered that we only trade when we have an edge. We do not know what the number will be. Thus there is no edge in taking a position before a number.

There are some traders who trade exclusively off the oil and gas number. I used to sit near a few of these guys. They have a Bloomberg. They are very experienced trading off the number. And in a few minutes they can make some pretty good money. I have heard that these traders often call it a day after such plays. But these traders wait for the number to be released and then pounce. Whenever I hear anecdotes like this I am impressed. But I caution the new trader that these guys are really good at what they do. I mean really good.

I do not know any intraday traders who take positions before a number, Fed announcement, or earnings release. If there is news released apposite to your position you may not be able to exit for points. The Box may appear before an announcement that you can exit with just a small loss. But I have seen many times where this is just not the case. And if we are only interested in making trades where our upside is 5 and our downside is 1, and we cannot quantify the downside before the number is announced, then this is a trade that we should not make. We have no edge.

Good luck with your trading!