Using options data for directional forcasting

Discussion in 'Data Sets and Feeds' started by gulf4, Oct 25, 2011.

  1. gulf4

    gulf4

    I have been trying to interpret options data to get an idea as to which direction a stock may move after an event such as earnings release. I am only looking for short term direction, a day or two, not long term.

    The options data I'm talking about are those such as P/C OI ratios, P/C volume ratios, IV, etc.

    I understand how they may be used for longer term bearish or bullish as a contrarian indicators but I am wondering if any have had success reading the small changes in this data just prior to earnings release in order to get an idea whether the market senses good numbers or bad.

    Failing that what tech indicators on the underlying stock are popular or have a good record for the same situation.

    I'm not so much concerned with the size of the move, just direction.
     
  2. dudij

    dudij

    I've been trading earnings for a while. I haven't carried out a statistical analysis regarding the indicators you mentioned - but from my experience these indicators are pretty much useless for predicting the final movement of the stock after earnings.

    Happy to hear if anyone has evidence against this.

    Earnings are pretty unpredictable. Even if profits are up the stock may be punished because it didn't reach analyst estimates and sometimes the punishment can be severe.

    I put on relatively delta neutral trades around earnings, but that's a bit off topic. Happy to expound on it if you would like.

    I have seen a book on the subject and have been meaning to buy:
    look up on Amazon a book called "Trading on corporate earnings news" (by John Shon and Ping Zhou).
     
  3. I do not think that you can determine direction post earnings from anything other than the reaction to the release.

    Post earnings behavior can be fickle. A great earnings report 2 cents shy of expectations can tank a stock. A subtle comment in the conference call can also move it either way. There's no way to know in advance what the reaction will be.

    With options, better strategy is to attempt to play volatility skew when distorted. With stock, play the direction post release.
     
  4. If someone figured this out don't you think they could make millions and not want to tell you?
     
  5. Here's an article on the subject.
     
  6. And another.
     
  7. One more.