Buying call options ahead of earnings has been profitable

Discussion in 'Options' started by ajensen, Feb 8, 2019.

  1. ajensen

    ajensen

    From the Wall Street Journal Daily Shot of Feb 8, 2019. Does anyone employ this strategy of systematically buying call options before earnings releases? Are there really lots of stock options traders who don't know when earnings come out and therefore underprice options ahead of earnings? I don't know if the results include transaction costs.

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    5. Buying call options ahead of the earnings releases has been quite profitable this quarter.

    [​IMG]
    Source: Goldman Sachs, @WallStJesus
     
    ironchef likes this.
  2. I can see buying options a few days before earnings and selling right before earnings can be profitable due to increased IV. Unfortunately, the article is paywalled so the only thing I can say is they are testing this theory in a bull market.
     
  3. tommcginnis

    tommcginnis

    What the hell is this?
    Are we talking some amalgam of |δ| @ .70, .50, .30?
    Are we talking a single strike at |δ| =.50?
    Are just buying OTM?!? That'd just be a joke.

    Unless GS is *specifying* the purchase regime, I smell a rat.
     
  4. Buying Calls in a Bull Market is profitable!

    The Sky is blue

    Shit smells


    Trying to think of other obvious dumb shit we could say...
     
  5. ajensen

    ajensen

    "Buying Calls in a Bull Market is profitable!"

    The last bar shown in the graph is for 2019, so the previous four are for 2018. The average of the 2018 bars is positive, even though the stock market fell in 2018. So yes, the strategy of buying calls before earnings has positive beta, but it may also have positive alpha.
     
  6. 2018 was a negative year if you take that chart at face value.... also market fell mostly in 2d half of 2018...
     
  7. ironchef

    ironchef

    Be nice sir, the chart said buying nearest OTM, 1 month to exp., 5 days to earning and sold day after earning. Other than specifying what underlying it is as specific as they come.My assumption is since this is a backtest result, they are buying all individual SP500 underlying which is not realistic for us mom and pop.

    For me if my holding period includes an earning, I usually exit a few days prior to earning because of the usual IV increase and sometimes run up in price.

    But you are right, as always the devil is in the details.
     
    tommcginnis likes this.
  8. This was a favorite of mine back in the late 90's to 2000 with all the tech stocks, DELL, CSCO, MSFT, etc.. I usually looked for something in the .15 to .50 cent range and normally had at least a double and quite a few times a lot more. I never went in with huge size, but it was enough to be worthwhile. I haven't looked at it in a long time, but probably should have been with the latest tech run up and their usual phony estimates they magically beat on a regular basis.
     
    ajensen likes this.
  9. What matters is how the market performed during earnings season (or more specifically five days before earnings of the components to one day after), not what the market did the entire year. The market could be down for the year and still up during earnings season.
     
  10. tommcginnis

    tommcginnis

    WOW. MISSED THAT ONE.:wtf::confused::wtf:
    Thank you, ironchef. :rolleyes::rolleyes::rolleyes:
     
    #10     Feb 8, 2019