What Is a Catalyst?
A catalyst is a scheduled or unscheduled event that can cause a significant, rapid price move in a stock or the broader market. Catalysts fall into two buckets: company-specific (earnings, FDA decisions, M&A, analyst actions) and macro (economic data, Fed decisions, geopolitical events).
Earnings — The Biggest Company Catalyst
Every quarter, public companies report their earnings. For traders, earnings are the most predictable catalyst you will encounter — you know the date and time in advance, and the volatility it creates is significant.
Before Earnings
In the days leading into earnings, implied volatility (IV) rises as the options market prices in the uncertainty. Key things to check:
- Consensus expectations — EPS estimate, revenue estimate, key guidance metrics
- IV rank / IV percentile — how elevated is options pricing relative to history
- Historical earnings moves — how much has this stock moved on past earnings
- Options pricing the move — the at-the-money straddle approximates the expected move priced by the market
After Earnings — The IV Crush
The moment earnings are released, IV collapses — this is called IV crush. If you bought calls or puts before earnings, their value can drop even if the stock moved in your direction. You need the stock to move MORE than the market expected.
Beat on EPS and revenue, raised guidance, stock down 5% — this happens all the time. Why? Because the stock was already pricing in perfection. The actual results, while good, were not BETTER than what was already expected.
Macro Catalysts — Economic Data
- Non-Farm Payrolls (NFP) — First Friday of each month, 8:30am ET. The most-watched employment indicator.
- Consumer Price Index (CPI) — Monthly inflation data. When inflation is above target, rate hike expectations rise.
- FOMC Decisions — The Federal Reserve sets interest rate policy at eight meetings per year. The decision and the press conference are both market-moving.
- Retail Sales, ISM, GDP — Secondary but still important data points that contribute to the macro mosaic.
How to Trade Around Catalysts
- Avoid — Simply go flat before the event. No position, no risk. This is often the most profitable decision and the hardest one psychologically.
- Size down — Reduce your position to a fraction of normal size before the release.
- Trade the reaction — Wait for the market to digest the news, then trade the technical setup that emerges. The initial spike-and-reverse pattern after a macro release is one of the most reliable intraday patterns in the market.
The Catalyst tab in Zharks shows the FinancialJuice economic calendar and live news feed. Use it every morning to know what is coming before you put on any position.