How to Trade Corporate Earnings with Options

 

Corporate earnings "season" – when a lot of companies issue earnings reports – is a time when stock volatility is very high and investors can profit from targeted, short-term options positions. 

Why Are Earnings Announcements So Important to Traders and Investors?

All publicly traded US corporations release mandatory earnings reports every quarter. These four-times-a-year corporate earning news releases allows investors to judge how well a company's business is going. Are they growing sales, earnings or both? It also provides an interim insights into overall financial health of the company. 

This data can affect a company's stock price, the stock volatility tends to increase as it nears earning announcement. 

It occurs on a specific date every quarter and an earnings calendar can be found on Reuters, Yahoo Finance, Earnings Whisper and many other free websites.

What Triggers Stocks Price Volatility 

The Wall Street analysts predicts a wider range of data to measure a company's performance. Sales (or also knows as Topline), and Profits (also known as bottom line) are two such parameters. Sales & profit results are measured not only for the past quarter against the expectations but their guidance for coming quarter and year is also measure against what analysts were expecting. Uncertainty around all these is what triggers rise in volatility. It is then also reflected in the options prices via implied volatility.

The changes in implied volatility and stock prices create some unique opportunities to profit disproportionately using appropriate options trading strategies.

How to Make Money Trading the Earnings

There are many types of Options Strategies for trading earnings. However, for simplicity I will classify those into 3 buckets:

  1. Long or Short Bullish or Bearish directions trades
  2. Pure volatility and volatility arbitrage trades
  3. Earning momentum trades

Predicting earnings outcome is usually hard. But one thing is clear, trading on earnings reports offers immense profit opportunities, if you know how.

Simple and Smart Start Way to Trade Earnings

Before you could advance into trading earnings with complex strategies, lets first begin with basics. I conducted 2 FB live workshops where I covered some Option Strategies for Earnings Announcements.

You watched 1st FB live video above and learnt followings:

  • How earnings present massive opportunity
  • 3 Type of profit opportunities from earning announcements
  • Simple yet powerful ninja strategies for trading Pre & Post-earning stock move
  • Intensive Q&A 
  • and more...

And if you missed part-1 video, I am attaching that below. Watch this video to learn following:

  • 2 Primary method of generating income from financial markets
  • Brief explanation of options A trade on NIFTY India (Resulted in 100% gains in a week)
  • How to construct delta neutral/ vega positive trades for pre-earning and more...

It was then followed by sharing a complete step-by-step guide on how to build a good pre-earning trade, multiple case studies (VRX and IBM) and then list of 500+ companies announcing earnings during the week of 27th Jul -31Jul 2020. 

If you missed all these gifts, you can download those here.

This is just the tip of the iceberg when it comes to earning announcement. There is lot more. But before you could learn more, it is important to understand concepts well and practice simpler options strategies for trading corporate earnings.

Join the conversation by leaving a comment or asking a question below...

Happy trading,

Manoj Kumar

 

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