Archive for the ‘Earnings Announcement Options Strategy’ Category

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All Results Presented are Hypothetical for educational purposes only and do not include slippage or commissions There is a substantial risk of loss in trading financial instruments of any kind including stocks, futures and options. Clients should consider all relevant risk factors, including their own personal financial situation, before trading.

Don't trade with money you can't afford to lose. Past performance is not indicative of future results. You're The Options Expert.

Interested in learning more about Earnings Plays? Contact your Product Representative Today! In this video Len Yates introduces the Earnings Plays and shows how easy it is to track trading opportunities and exactly what action to take, including when to get in and out of the trade. James demonstrates how to use the Earnings Plays module. He goes over the five categories of Earnings Plays, how to place the trades, and shares valuable tips learned from his experience trading them in the real world.

The five strategies covered by the new Earnings Plays module are: Stocks that make big moves - options tend to be under valued. Stocks that make smaller-than-expected movesoptions tend to be trading options around earnings announcements and other financial reports valued.

Two stocks in the same industry, only one of which is announcing earnings. Echoes - Two stocks in the same industry, with o ne announcing days after the other. Runners - Stocks that tend to "run" in price after the earnings announcement. This system is based on the hypothetical results actual trades would have experienced in the past and shows you a quality ranking for each trade along with its past success rate.

Detailed instructions tell you exactly when to open and close each trade based on past historical performance of those trades. Each week sophisticated search algorithms are performed in the servers which produce the all-important stock lists. These lists can then be imported automatically into your OptionVue program based on the filter settings you choose for qualifying candidates. Earnings Plays is NOT a trading system!

It is designed to present you with a list of potential trades every week for you to look at. This not only saves you a lot of time, but also notifies you of potential earnings related trades you might otherwise miss. Still, we always get the question: What if I blindly and mechanically do every trade as if I I were a complete idiot with no understanding of how to trade options?

We do place the recommended trades to see how they do and the results are encouraging. Each quarter is a bit different, and the most profitable strategy in one quarter might not be profitable in the next. By the same token, one that underperformed last trading options around earnings announcements and other financial reports might give you spectacular gains this quarter.

Below is a detailed breakdown for the 4th quarter. Results from Earnings Season for Fourth Quarter There were a total of 91 recommended trades in all five categories combined. You choose the quality settings used, and of course pick and choose trades you want to place, or simply focus on one or more of the possible strategies. It is not unusual for the price of a stock to rise or fall significantly after an earnings report.

This potential for a stock to move in response to an earnings report creates trading opportunities. Making trading options around earnings announcements and other financial reports based around the earnings announcements of stocks is nothing new - but now OptionVue introduces a revolutionary set of tools for trading options around earnings plays.

There are five different kinds trading options around earnings announcements and other financial reports earnings plays that are tracked by Optionvue — two that most people are familiar with and three that are completely new. Lists of stocks that are exceptional plays are brought directly into the OptionVue Quotes Display, where you can manage them and sort them in different ways. The program includes a new "weekly planner" that shows every trade that needs to be placed in the coming week, as well as in further weeks.

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A study by Roll, Schwartz, and Subrahmanyam found that options trading around earnings announcements has been steadily increasing every year since Before we begin with specific trading strategies, it makes sense to get a sense of the general behavior of options around earnings announcement periods.

Several studies have considered this issue with respect to options prices. Part of this is certainly because earnings information probably is leaked early. However, even if there were no information leak, this suggests that sophisticated institutional investors are estimating earnings accurately before they are announced.

Contrast that with companies that have no options listed or traded. Remember, nonoptioned companies tend to be small-cap companies that not as many people pay attention to. Indeed, several studies examine this issue. For instance, a study by Mendenhall and Fehrs and another by Kim and Lee suggest that, if you are an informed trader with valuable information that the public does not have Well, where would you go to extract the biggest bang for your buck?

Many investment websites and blogs take the time to tell their readers about large options positions that have recently been opened for certain companies. In the preannouncement period, we know that smart money puts on trades to exploit their superior information.

They found that more long call positions and short put positions were opened before positive earnings surprises. Similarly, they found that more long put and short call trades were put on before bad earnings surprises. Roll, Schwartz, and Subrahmanyam also found that this effect was even stronger for companies that had a relatively higher number of analysts who follow the company and for companies with higher levels of institutional ownership. For more than 30 years, when a study by Patell and Wolfson was published, we have also known that the implied volatility of options tends to increase in the earnings preannouncement period.

This is because nerves are frayed in the frenzied anticipation of the news. But the difference is even more pronounced right before earnings announcements. A study by Donders, Kouwenberg, and Vorst found similar increases in the open interest and trading volume of options in the preannouncement period. And the higher the options trading volume in the preannouncement period, the stronger the price anticipation during this period.

A study by Corrado and Truong also confirms this. In general, these studies suggest that much action occurs in the preannouncement period.

Earnings announcements are the most prominent, regularly recurring corporate event for publicly traded companies. Last, how things happen in the preannouncement period can predict how things will play out during the actual earnings announcement.

Another finding of the Roll, Schwartz, and Subrahmanyam study is that higher trading volume in the preannouncement period tends to equate to less trading volume for the market reaction to the announcement itself. The more the action has been impounded into option prices in the preannouncement period, the less action the actual announcement will have. After all, only so much news can get impounded. The authors also found that, if relative options trading volume is high when the announcement happens such as during the announcement day , the change in option prices also tends to be higher.

That is, higher volume is related to bigger price action regardless of the preannouncement trading volume. To sign up for the jobs feed, click here. You don't need to be a CFA charterholder to join! The Finance Professionals' Post The Finance Professionals' Post educates readers in the finance and banking sectors on the forces that shape their business.

The idea that companies with listed options have a larger amount of information impounded into their stock prices makes intuitive sense. And this is precisely what a study by Amin and Lee found about optioned companies. They found that this better information impounding happened for optioned companies in both their earnings announcement periods and their non-earnings-announcement periods—basically, all the time.

They found that the price adjustment to earnings news in the immediate aftermath of an announcement is faster for optioned companies than it is for nonoptioned companies. What this discussion means for you in a practical sense is that it is unlikely that you, as an individual investor with limited resources, will have a consistent informational advantage over the market as a whole or over more sophisticated institutional investors.