Options Trading During Earnings - How It Affects Options - Trading Basics

Options Trading During Earnings - How It Affects Options

What Is Earnings Season?: 0:00
What Is Implied Volatility?/Why You Shouldn't Buy Options Into Earnings: 0:57
How Is Implied Volatility Measured?: 5:28
Why You Shouldn't Sell Options Into Earnings: 9:34

How does earnings season can impact option trading? Earnings season happens four times a year, and is when corporations reveal their financial results for the previous quarter.

Results of a company's earnings report can have a major impact on the stock price, and options will often price in the expectations before the event so it's likely that options premiums are more expensive.

This can impact your trading with implied volatility.

What makes up an options price?
- Implied Volatility: the market's expectation for future volatility. Traders don't know which direction the stock will go, but once a company reports earnings, there is no more uncertainty.

So why is this important?
- As the buyer of an option, higher implied volatility means that you are paying more for your contract & are at risk for a volatility crash.

Using Seagate as an example, they reported earnings and were trading at $61.45.

The day before earnings:
- ATM call 61.50 strike last traded price was $1.74, and the implied volatility was 128%.
- The put was going for $1.82 and the implied volatility was also 128%.

The after earnings:
- Seagate dropped to $59.33.
- The price of the 61.50 call is only a penny.
- The put fell to $3.62, but the put only went from $1.82 so it went up, because puts go up as the stock go down, to 2.51.
- So the put only went up $0.69
- The previous day the IV was 128% the day before 96% the day after.

How is IV measured?

You compare the implied volatility to the stock's historical volatility for exactly the same time frame.

The IV measures the market expectation for future price action & the historical volatility measures the volatility for a stock that already occurred, and all you have to do to see how the IV compares to the HV.

For historical volatility, it makes sense to look at it in 10, 20, 30, 40 days increments.

Earnings plays are hit-and-miss, & sometimes stocks jump dramatically.

It's best to focus on SRC profits:
- Systematic because I like to trade what I see and not what I think.
- Repeatable and by trading my plan.
- Consistency.

With The Wheel strategy, the idea is to get paid while you wait to buy the stock by collecting premium by selling puts.

Ideally higher IV is good for this and as a rule of thumb, I look for stocks with an IV, of at least 40%. but I don't trade into earnings, no matter if you're buying or selling.

Earnings are a wildcard and there's just too much uncertainty. It's always good to know when they report earnings if you have any open positions, whether you're buying stocks or selling stocks so that you're not caught off guard.

Recommended Videos:
The Wheel Options Strategy Playlist:

#StockMarket #OptionsStrategies #EarningsAnnouncements
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[rockwelltradingservices]

So now you know how earnings season affects options and why I don't trade during these times. I hope this video helped. Let me know in the comments what other topics you'd like to see me do a video on.

Recommended Videos:
The Wheel Options Strategy Playlist:

[jacecepriano]

Good info as always. Thanks for keeping us informed on trends.

[donkndave]

Markus, if you trade the wheel stragegy and get assigned to own the stock, is it wise to trade this with a dividend paying stock? Seems one can get paid for the covered call premium and the dividend if it comes up on the x dividend date. It this sound as a strategy?

[clomar]

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[stevenporter]

This must be an old video because it has been a while since you have had Uber, Hal, and WW, at the same time and WW gives their earnings tomorrow.