My Secret To Huge Profits During Earnings Season

The third-quarter earnings season kicked off Tuesday, with Alcoa (NYSE: AA) announcing before the bell.

According to FactSet, Q3 earnings for companies in the S&P 500 are expected to drop 2.1%, which would mark the sixth consecutive quarter of year-over-year declines.

This would be an improvement from the 3.5% drop in earnings in the second quarter, though. And while I have voiced my concerns about what the current earnings recession means for the broader market going forward, there's no denying that the upcoming earnings season will present plenty of opportunity for traders to make quick, outsized profits.

FactSet notes that 72% of S&P 500 companies beat Q2 earnings estimates, while 19% missed expectations. This means only 9% of companies reported results that were in line with analysts' estimates. Given the high number of surprises, both bullish and bearish, it's no wonder we see increased volatility (i.e., big stock moves) during earning season.

Yet, despite the opportunity for quick gains from post-earnings moves, many investors shy away from trading around earnings reports. Their reason is simple: It's risky.

Sure, you may see gains of 5% or even 10% in a single day if you call it right. But if you're wrong, the losses can be just as big.

If you could accurately predict whether a company will beat or miss earnings estimates before its quarterly report, though, then you could make a killing.