Directional trades prior to earnings

Discussion in 'Options' started by oldmonk, Jul 3, 2018.


  1. Your OP appears to be straddles/strangles versus long calls before earnings.

    My reply is to go with long calls only - or puts. You can exit before earnings or after.
     
    #11     Jul 4, 2018
  2. Robert Morse

    Robert Morse Sponsor

    This company has an option backtesting that has studies for this type of question.
    https://tm2.cmlviz.com/login.php

    Bob
     
    #12     Jul 4, 2018
  3. truetype

    truetype

    #13     Jul 4, 2018
  4. Robert Morse

    Robert Morse Sponsor

    Are you saying that is high or low to help you make money or avoid a bad trade?
     
    #14     Jul 4, 2018
  5. truetype

    truetype

    No opinion on that - just a point of information.
     
    #15     Jul 4, 2018
  6. ironchef

    ironchef

    This is just an opinion and not a fact:

    In general, the option market is quite efficient, so if you do not have knowledge and just randomly buy/sell straddles/strangles or call/put you will not profit.

    Why do I have this opinion? I forward tested this (buying straddle/strangle and call/put prior to events) with small positions (unfortunately not statistically significant samples) and netted nothing to speak of. Intuitively, think about this: Straddle/strangle cover movements to both sides but you pay twice the premium, call/put cover only one side so you will be wrong half the time. The net result should be about the same unless I know beforehand which side it will go. Market makers, institution traders are not stupid and won't willingly hand money over to me, a small mom and pop retail trader without a fight.

    If you are a small mom and pop like me and want to play this game, perhaps it is better to play after earning? o_O Anyone with opinion on this is welcome to comment.

    Thanks in advance.
     
    #16     Jul 4, 2018
  7. ironchef

    ironchef

    And the results of the study?
     
    #17     Jul 4, 2018
  8. Handle123

    Handle123

    Why is it when people see $1500 is huge sum and when your profitable it is a fixed cost of Trading? Maybe they only at first they believe in hope and dreams?

    I keep an education acct every year and put same amount so when there something interesting I don't think bout it. And am not picking on other anyone's post, just an opinion.
     
    #18     Jul 4, 2018
    beginner66 likes this.
  9. #19     Jul 4, 2018
  10. Jones75

    Jones75

    When playing earnings (buy puts only), these are some indicators I use. Its not a bread and butter way to go, because finding setups can be tough.

    P/B, P/S or P/E is bloated (2 out of 3 big time)
    earnings history shows >5% move (either way in the past 2 or 3 reports)
    heavily traded (got to be liquid for an easy exit)

    Works best with lower end of mid caps or higher end of small caps (<2B). Be careful around the big stuff (unless you have very deep pockets)

    And with puts, the IV is more favorable when a stock heads south. So if IV collapses after the announcement, its only for a very short time. The opposite is true for a call on a stock heading north.

    All the above is IMHO only.:D
     
    #20     Jul 4, 2018
    Adam777 likes this.