If you get killed on earnings and you're not protecting yourself, you should be learning from someone who knows how to hedge properly. Let me show you exactly how I handled Merck yesterday - this is textbook risk management.
I sold half my Merck position at $84 yesterday. Then I bought puts for about $1.50. This morning, Merck dropped $7, and I cashed out the puts for $3.50-4.00. Made $400 on 100 shares while the stock crashed, then Merck bounced back.
Net result? I broke even on a $7 gap down. That's how you do it, people. And you can, as well…
The Genesis Cog members lost no money on this move. Either they sold at $84 and saved themselves a $7 hit, or they hedged it and mitigated the damage completely. That's how I teach people to survive earnings volatility.
But here's what's fascinating about the Merck situation: CNBC completely misreported the earnings. Don't ever trust CNBC or social media for immediate earnings analysis. They reported Merck missed the number - Merck actually beat it. Then they said Merck missed revenue by some massive amount.
The reality? Merck missed revenue by $9 million on $16 billion total revenue. That's 0.001%. People panic-sold this morning based on misreported information, and smart money - institutional money - came in and bought it.
How do I know it was institutional money? Look at the volume pattern and the immediate reversal. That's not retail behavior. When you see panic selling followed by immediate institutional buying on a stock that actually beat earnings and guided higher, you're witnessing professional opportunity recognition.
Merck guided higher for the rest of the year. They're telling you they'll earn $9 per share. Take a conservative 10 multiple - that's a $90 stock trading at $80. Give it a 12 multiple, which is reasonable for a pharmaceutical company with guided growth? That's a $108 stock.
The math doesn't lie. People do. Numbers don't lie.
This is exactly why the Genesis Cog methodology works: we don't just buy and hope. We position, we hedge, we take partial profits, and we protect capital. When you hit target prices, you sell. You don't wait around pretending the stock will stay there forever because it never does.
But the Merck trade teaches a bigger lesson about this broken market. When earnings come out and get misreported, when panic selling creates opportunity for those who actually read the numbers, when institutional money swoops in while retail panics - these are signs of a market driven by algorithms and emotion, not analysis.
Here's what you can learn from this trade structure:
First, take partial profits when you have them. Half positions at significant gains protect you from giving back everything while maintaining upside exposure.
Second, hedge major positions going into earnings. The cost of protection is minimal compared to the cost of getting destroyed by volatility.
Third, understand that earnings reactions are often about perception, not reality. CNBC's misreporting created a buying opportunity for those who actually analyzed the numbers.
Fourth, institutional money recognizes value faster than retail money recognizes panic. When professional money starts buying what retail is selling, pay attention to the signal.
The beauty of this methodology is its repeatability. This isn't about being right every time - it's about structuring trades where you win more often than you lose and protect capital when you're wrong.
Most traders approach earnings like gamblers: they make a directional bet and hope. Professional traders approach earnings like insurance companies: they calculate risk, price protection, and structure positions to survive volatility.
If you're getting your accounts blown out on earnings plays, you need systematic approaches to risk management. You need to understand that hedging isn't about avoiding all losses - it's about avoiding unacceptable losses.
The Genesis Cog methodology isn't just about picking stocks. It's about structuring trades, managing risk, and protecting capital while maintaining growth potential. When you master position sizing, partial profit-taking, and hedging strategies, earnings volatility becomes opportunity instead of destruction.
That's how you survive 37 years in this business. Not by being right every time, but by being wrong correctly.
By Prof. Jeff Bierman, CMT