Dennis Dick, or DDD as the Stock Trader Network refers to him, has a name for the kind of trade that can look easy right up until it blows up in your hand.

He calls it the “Grenade Trade.”

DDD, Chief Market Strategist and co-host of PreMarket Prep, walked through the setup Tuesday morning after using it ahead of Rocket Lab’s (RKLB) earnings report.

“The grenade trade is [to] buy the close at four o’clock and flip it out for the people who are just getting in there just a couple minutes ahead of it,” DDD said.

The idea is straightforward enough. When a company is scheduled to report shortly after the closing bell, traders sometimes pile into the stock during the few minutes between the 4 p.m. close and the earnings release. That, sometimes, can produce a brief pop before anyone has actually seen the numbers.

The trade attempts to capture that move without holding through earnings.

“So often, what you see is a stock closes, and then it has a little pop-up right before the report,” DDD said. “The grenade trade is [when] you pull the pin. The earnings are due, don’t get your hand blown off, but get rid of those shares before it reports.”

Rocket Lab was scheduled to report at 4:05 p.m. ET. DDD said the stock closed around $80.04 and traded above $82 during the short window before the release. He exited before the high, while traders in the Stock Trader Network Think Tank captured more than $1 of the move.

That window is also what makes the trade dangerous.

“The problem lies when they report early,” DDD said. If a company issues results before the expected time, a trader looking for a quick pre-earnings flip can suddenly find themselves holding through the report.

“It’s a risky, risky trade,” DDD said. “When it doesn’t work, it’s really bad.”

That is the grenade part of the Grenade Trade. The goal is to get in, capture the pre-report positioning and be gone before the pin hits the floor.

This article is for informational purposes only and is not financial advice