How to play earnings like you have a braincell

by getabucket92

I, as well, am retarded. However, I just have enough neural capacity to learn from my mistakes.

TLDR; Buy options now for earnings that are at least two weeks out. Volatility rises right before earnings which means even if you choose the wrong direction, the option will either retain more or gain more value. Sell BEFORE earnings call. Buy LEAPS after earnings.

  1. Volatility rises before earnings. Due to investors having different expectations, volume on stock rising, and the investment world circle jerking about earnings. Don’t believe me? sixfigureinvesting.com/2013/01/riding-the-iv-ramp-before-amazon-earnings/ here is an article explaining the phenomenon.
  2. Buy low, sell high. With volatility rising before earnings, you can buy low volatility options (cheaper) weeks before earnings come out. Place the expiry either before or after earnings. If you’re choosing before earnings, you can buy it for much cheaper but in turn you take on significantly more risk of expiring worthless before you capitalize on volatility. Instead, buy an option that is at least 2.5 weeks before earnings that expires after announcement.
  3. Sell BEFORE earnings. Earnings in this economy have been a crapshoot. DPZ beats expectations handily, loses value the next day. Here finance.yahoo.com/quote/dpz?ltr=1 is their chart, switch to one month out. In the four weeks leading up to earnings, DPZ rose 18.6% on expectations of good earnings. From there, they fell 4% in the following day after earnings. Snap kinda shit the bed on earnings but a silver turd of new users allowed their stock to go up after earnings. Do not bet on what the earnings will do for the company’s stock, bet that the thought of good/bad earnings will influence the price in a certain direction.
  4. Buy at the money options in the direction you expect it to go. www.investopedia.com/terms/v/volatilitysmile.asp Volatility is lowest in at the money options. Buying too far in our out of the money will decrease your gains due to volatility and you will have to be very accurate in your strike price assessment.
  5. In regards to theta. Theta can fuck you in any options trade, but Implied volatility can crush you. Here we are betting that implied volatility will increase more than theta can.
  6. Do your homework. I flared this as options since I have not chosen the moves I want to make yet. Pick companies that have been trading in a relatively set boundary for a while. Volatility will be lower than a company that ranges wildly. Find companies that either benefited or got hammered due to coronavirus, choose option accordingly. News is another way that volatility can get crushed, so under-the-radar companies are more preferred. If you choose a company that a gets hit with a clearly positive or negative story, IV is reduced and you’re now cucked by theta.

Hope you guys can read. I might come out with DD using this line of thinking if people give enough of a f*ck about this. Don’t be retarded and hold past earnings.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.