Schaeffer’s Investment Research review of using options during upcoming earnings season.
When an earnings season is approaching, it is a great time for eager options traders to capitalize on market volatility. Schaeffer’s Investment Research reviews note there are perks and pitfalls traders will want to maximize and avoid during this quarterly frenzy.
Schaeffer’s Investment Research review of earnings season and options trading connection
According to a Schaeffer’s Investment Research review, end-of-quarter earnings reports and news help contribute to an overall market volatility in the month following the end of a quarter. As earnings calls are scheduled and reports released, the shrewd options’ trader can find opportunities that do not exist regularly at any other time of year. The predictable volatility is an event you can build a plan around.
Assessing volatility in earnings season
Based on the information contained in earnings reports, the stock of a given company may dramatically increase, increase slightly, remain relatively neutral, or dramatically decrease or decrease slightly. The anticipated volatility based on potential earning reports news can inform how you trade.
Schaeffer’s Investment Research review suggests most buyers invest in call options when a price increase is expected and put options if a decline in price is anticipated. Options are also easily used to hedge a stockholder’s position in stock going into earnings season in order to offset potential volatility.
Schaeffer’s Investment Research reviews implied volatility
Implied volatility is a key measurement for options traders prepared to maximize earnings season. This metric is based on how high a stock is expected to move. Historic volatility indexes make it possible to examine performance based on prior earnings reports and news and also examine recent fluctuations to arrive at IV. By comparing the actual volatility of a stock in earnings season compared to what was predicted via IV for the same period, the weight of a current IV metric can be better assessed as part of an options trading strategy per Schaeffer’s Investment Research review.
The iron condor approach
For investors who want to play it both ways, the iron condor approach makes it possible to use both short call and short put options in a spread strategy along with a long call and put. Per Schaeffer’s Investment Research review, this allows the trader to profit, in some circumstances, due to the volatility in the market. A gain is realized when the spreads are repurchased at a lower rate or expire. While returns are lower on this strategy, risks are also minimized.