This article was originally published in The Option Strategist Newsletter Volume 20, No. 8 on April 29, 2011.
Once again, as we enter another earnings reporting season, we are seeing some large moves by individual stocks and perhaps even larger anticipation of moves by the option markets in advance of the earnings announcement. This was a topic of much discussion at the just-concluded 3 Gurus Webinar over the past two days. Because of that interest, we thought the subject is apropos as the feature article this week. In this article, we’re going to review the strategies that are often recommended in this newsletter.
This article was originally published in The Option Strategist Newsletter Volume 15, No. 10 on May 25, 2006.
In our last issue, we discussed the viability of buying a stock after event-driven news has caused the stock to gap. The conclusion was that there was a small potential profit there, but we are continuing to gather data on that subject. In this issue, we want to take a different tack: does it make sense to buy straddles on stocks that are about to report earnings? In particular, what about the stocks where traders expect the most action – i.e., those with inflated implied volatility prior to the earnings report? This is not an entirely new subject for this newsletter (reference issues 7:04, 9:20, and 13:16, for example), but it is the first time we’ve addressed this issue in a while. Furthermore, we are still of the opinion that this past quarter saw a new, higher level of earnings speculation than ever before.
