Welcome to Earnings Season, traders.
Ben here.
If you’ve ever traded options around an earnings report, you’ve probably noticed that some odd things can happen to the prices of your contracts…
But why do options trade so differently during earnings season?
Increased liquidity, retail trading, and elevated volatility all factor into how options are priced for an earnings report.
This leads to earnings trades being high-risk/high-reward setups. But you must be careful…
If you blindly buy puts or calls before an earnings print, you’re not trading … you’re gambling. That’s no different than sports betting because anything can happen on any given day.
That said, earnings season can provide some incredible trading opportunities. It’s one of my favorite times to trade.
You just have to know when to put your earnings trades on and how options are priced during this extra-volatile time of the year.
On the one hand: If you don’t grasp the nuances of earnings season NOW, you could lose a lot of money by making misinformed trades.
On the other hand: If you can get a basic understanding of this concept before the season really ramps up … you could potentially make a small fortune.
With that in mind, let me show you everything you need to know about trading options during earnings season…
Earnings Season: A Trader’s Playground
For those trading options, earnings season can seem like an all-you-can-eat buffet of trade opportunities.
The outsized risk/reward profile associated with earnings brings out the most degenerate, casino-gambler tendencies in traders.
SPOILER ALERT: Just take one look at r/WallStreetBets for hundreds of examples of this.
This excitement is good for us because it means there’s more money and volatility in the market, which equals more opportunities for disciplined traders.
Moreover, earnings reports are notorious for triggering some of the most dramatic single-day moves in stock market history.
Even generally boring stocks can make huge moves based on their earnings outcomes.
REMEMBER: The larger the swing, the larger the opportunity…
I’m always on the lookout for liquidity, action, and significant moves.
Earnings season brings all three to the forefront, which is why it has my full attention.
What Happens Before Earnings
Options prices are influenced by several factors, not just the price of the underlying stock.
One crucial factor is Implied Volatility (IV). IV represents the market’s expectation of how much the stock price will move in the future.
Before a company announces its earnings, there is often a lot of uncertainty about what the report will reveal. This uncertainty leads to higher IV.
When IV increases, the prices of options tend to go up, even if the actual stock price is trading slightly down or sideways.
This happens because a higher IV means a higher chance of significant price movements, which makes the options more valuable as they have the potential to become profitable.
What Happens During Earnings
Sometimes, a company’s stock doesn’t react as strongly as you might expect, even with positive earnings.
A 20% move in a stock could mean payday on weekly options. But come earnings season, inflated IV can throw a wrench in those plans.
To win, you’ve got to get how option pricing works during these times.
Around earnings, the pros predict stock moves by examining at-the-money (ATM) straddles.
Straddles involve buying puts and calls at the same price and expiry, aiming for a neutral stance on direction.
By checking these straddle prices, market makers can gauge a stock’s “implied move” and price options accordingly.
When trading around earnings, you need the actual stock movement to outdo the “implied move.”
For example: If analysts predict a 10% jump but the stock only moves 8%, even a directionally correct bet could lose money.
What Happens After Earnings
After the earnings report is released, the uncertainty is resolved.
Traders now know how the company performed, which usually causes the Implied Volatility to drop.
This sudden drop in IV is often called “IV Crush.”
A few typical things happen:
- Implied Volatility Drops: As mentioned, the uncertainty is gone, so IV usually falls sharply.
- Options Prices Adjust: Due to the drop in IV, options prices often decrease, unless the stock moves significantly.
- Share Price Movement: The stock itself can go up, down, or stay relatively flat after earnings, depending on how the results compare to market expectations.
You see, even if the stock price goes up after the earnings report, the decrease in IV can lead to a drop in options prices.
This is because the potential for large, unpredictable price movements has decreased, making the options less valuable.
Understanding these dynamics can help you make more informed decisions when trading options around earnings reports.
And speaking of trading options during earnings…
Operation Master Calendar
Despite what many traders think, earnings aren’t a mysterious enigma, completely unknown before the news breaks…
With the right tools and data, you can often see whether a company will beat or miss before the report occurs.
Realizing this, I’ve designed a specialized calendar system to accurately exploit earnings season for potentially massive profits…
Example: This calendar system recently projected a 91.2% earnings beat on Broadcom … BEFORE its call options exploded 1,014% in less than a day!*
You won’t want to miss the details I’m going to reveal during Operation: Master Calendar on Thursday, July 25th, at 8 p.m. Eastern.
But spots are filling up fast — Click here now to reserve your seat before it’s too late!
Now that you’re signed up, let’s look at:
💰The Biggest Smart-Money Bets of the Day💰
- $12.75 million bullish bet on COIN 07/26/2024 $275 calls @ $4.25 avg. (seen on 7/17)
- $3.78 million bullish bet on XLF 01/17/2025 $46 calls @ $1.24 avg. (seen on 7/17)
- $3.24 million bullish bet on GLD 11/15/2024 $240 calls @ $5.25 avg. (seen on 7/17)
Happy trading,
Ben Sturgill
*Past performance does not indicate future results
