Trading options based on earnings

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Qualcomm makes and sells product in Asia, while Royal is a travel stock.

How To Use Options To Make Earnings Predictions

It can help take the edge off wild markets like this one. Write to Al Root at allen.

Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at or visit www. We've detected you are on Internet Explorer. For the best Barrons. Google Firefox. Text size. These include volatility, uncertainty, and the potential for an outsize move in the price of a stock as earnings data is incorporated.

So the stakes can be high going into an earnings release. If the company beats earnings expectations, there could be a significant move to the upside.

Principle #2: Know Your Earnings Dates

After all, volatility is a measure of uncertainty. An earnings release essentially removes that uncertainty—for the current quarter, anyway.

But that may not be the best options strategy for earnings season. Because stock options prices are typically elevated thanks to higher implied volatility vol levels before the release. They often come back to earth after earnings are reported see figure 1. Implied volatility is a measure of uncertainty, and earnings season is a time of major uncertainty.

When earnings are released note the blue light bulb and the red telephone signifying the earnings release and conference call , the uncertainty is removed. The result, typically, is lower implied volatility. This dynamic can be key to understanding how to trade earnings with options. For illustrative purposes only.

The ONLY Strategy You Should Use During Earnings Season

Past performance does not guarantee future results. The following, like all of our strategy discussions, is strictly for educational purposes. It is not, and should not be considered, individualized advice or a recommendation. Options trading involves unique risks and is not suitable for all investors. Please note that these examples do not account for transaction costs or dividends. Transaction costs commissions and other fees are important factors and should be considered when evaluating any options trade.

Orders placed by other means will have higher transaction costs. Suppose that instead of going with just a straight long call option you chose to buy a long vertical spread. In this example, you could buy the call vertical by buying the call and selling the call. But when the volatility drops, the short option in the spread helps offset the losses of the long option.

And for standard U. While options are definitely not for everyone, if you believe options trading fits with your risk tolerance and overall investing strategy, TD Ameritrade can help you pursue your options trading strategies with powerful trading platforms, idea generation resources, and the support you need. Instead of looking to profit from movement, you can use an iron condor in an attempt to capitalize on the expected collapse of implied volatility. Reprints and Permissions.

Philbrick, D. Trading volume in options and common stock around quarterly earnings announcements.

Rev Quant Finan Acc 3, 71—89 Download citation. Issue Date : March Search SpringerLink Search.

Know Your Earnings Dates

Abstract This study examines trading in call and put options around quarterly earnings announcements and investigates whether the existence of these options affects the common stock trading volume response to these announcements. Immediate online access to all issues from Subscription will auto renew annually. References Bamber, L. Google Scholar Bernard, V. Google Scholar Black, F. Article Google Scholar Brown, S. Article Google Scholar Christie, A.

Article Google Scholar Cox, J. Google Scholar Epps, T. Article Google Scholar Froot, K. Article Google Scholar Hakansson, N. Google Scholar Holthausen, R. Google Scholar Hughes, J. Google Scholar Karpoff, J. Article Google Scholar Karpoff, J.

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