How to Place Earnings Option Trades
When a publicly traded company announces earningsthey are reporting the profit that a company made for a set time period. Why Do Companies Have Earnings? Companies have earnings announcements to show how their company is doing from a profitability standpoint.
Options and earnings
Many companies also release plans for the future. If you click on the watchlists tab, you can scroll down to the "Upcoming Earnings" page. If you are using a different watchlist, you can click on the filter button to select the underlyings within that watchlist that are in a given earnings range. The best place to find detailed information on earnings is clicking on the arrow at the top right of the screen once an underlying is selected. Clicking on the arrow will open a panel that displays earnings information pictured to the right.
Binary Event — Earnings At tastytrade, we consider earnings announcements to be binary events. To put it simply, binary events in the financial world are events that either have a positive or negative outcome.
Earnings events are what we call tradable binary events. This means that the underlying will experience some of its most extreme levels of volatility.
How To Use Options To Make Earnings Predictions
If you like to trade based on volatility, this means that you have an opportunity to exploit the spike in implied volatility around earnings. At earnings, IV rank is typically at its highest levels but not always.
So how can you exploit the expected volatility crush options trading earnings comes after a binary event?
One option our personal favorite is to sell options trading earnings around earnings. What's the first step to doing this? Picking an expiration date! Choosing An Expiration Think of implied volatility in relation to earnings as an upward climb. Implied volatility grows and grows as earnings near, and after earnings are announced, that upward climb turns into a downward spiral.
We want our trade to capture the peak of the climb, not the bottom of our spiral. Now that we have picked a date, the next step is to pick a direction bearish, bullish, or neutral.
Then, we need to figure out at what strike price we want to place our trade which helps determine our break even point. This can be a tricky decision, but you do have a lifeline! Expected Move If you want to make an earnings play another name for placing a trade specifically to capture the volatility crush that occurs during earningschoosing the right strike price s can be a difficult task.
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- How To Use Options To Make Earnings Predictions
Luckily for you, tastyworks has a tool that can help you decide your strikes! Explained simply, expected move is an analysis tool you can use to see what the market expects out of the earnings announcement. How to Find Expected Move on tastyworks If you go to the trade page on tastyworks, you can find expected move on the curve page. The expected move setting the pale red bar is used for earnings to signify a range that the stock price is likely to end up between, after earnings.
Earnings & Options | Learn How To Trade Earnings
By incorporating this number on the strike price bar in tastyworks, you can easily maneuver your strike prices and clearly see if your breakevens cover the expected move or not. For this reason, our main earnings strategy is selling premium. This means that any strategy that allows us to place a trade for a credit will do. Below are a few suggestions for strategies to try based on your market assumption Bearish Strategies.