Earnings season is really ramping up this week, so it’s a great time to discuss something to watch out for…
Ever wonder why some earnings plays that used to be money-makers suddenly become complete duds? I just caught a perfect example with Levi’s (LEVI) — a stock that used to trade pretty good on earnings but has now turned into what I call a retail graveyard.
When I pulled up the options flow for their latest earnings, what I saw was absolutely brutal. The biggest orders were tiny — and every one of them looked like retail.
No institutions anywhere. When all you see are scattered small orders, you instantly know you’re dealing with a market where the bigger players have stepped aside and left the entire order book to amateurs.
With size that small, you just don’t have real liquidity. When professionals aren’t participating, spreads widen, volume dries up and price action loses structure. A stock simply can’t move the way traders expect when there’s no meaningful push behind the flow.
The Liquidity Death Spiral
This lack of institutional flow creates a dangerous loop. Without bigger orders anchoring the moves, the stock starts behaving erratically. Levi’s used to trade clean during earnings, with predictable reactions.
Now it gaps randomly and drifts because there’s no conviction on either side.
But thin markets can offer opportunities too. When liquidity gets this shallow, any real order — even something that wouldn’t matter in a healthier name — suddenly becomes meaningful.
If you see anything notable hit the tape, you almost have to pay attention because it can represent most of the action in the entire stock. In markets like this, a single directional push can turn into a real move simply because there’s nothing to counter it.
The Spread Trading Problem
Then there’s the issue of spreads. Every earnings season, traders overcomplicate these plays with multi-leg structures that cap upside and create execution headaches.
Spreads might make sense in thick markets, but in a thin environment they just create bad fills and limit your ability to take advantage of the rare moves that do happen.
During earnings, clean directional trades are usually the smarter path. When each order carries outsized weight, tying up the trade with spreads makes it harder to grab the move you’re aiming for.
If you’re going to play an earnings move in a name with weak liquidity, you want clarity and flexibility — not complicated structures that slow you down.
The lesson here is simple: Before you touch an earnings trade, look at who’s actually participating. If the biggest orders are small and scattered, you’re trading against noise instead of real conviction — and that changes everything.
Order Flow:
This is for informational and educational purposes only. These are not official alerts issued by Lance, but rather some interesting orders picked by the team at Lance Ippolito Trading.
When you look at these plays, always take the market maker move into consideration.
You can be right on the direction but still lose money if the stock doesn’t move enough. That’s where the market maker move comes in clutch.
With puts, they’re often downside hedges in case a stock tanks, especially around earnings. The further out of the money they are, the more likely they are to be hedges.
Also be sure and check when the company’s earnings date is because many of the plays we post here are centered around earnings!
If a stock is really expensive, consider a spread to lower the cost.
And finally, always remember the golden rule when it comes to buying calls: Buy dips, sell rips — and don’t chase!
If a stock’s moved a ton already today, maybe wait for a pullback.
There is inherent risk in trading. Trade at your own risk.
Note: If no date is listed after the month, it’s the monthly expiration (third Friday).
The team at Lance Ippolito Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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