How to trade around earnings
Learn the steps in about 5 minutes
There are two main reasons why traders like to trade around earnings.
- The uncertainty of the event
- Increase in trading volume
The uncertainty of the earnings and an increase in trading volume around earnings causes risk premiums to increase and creates opportunities for higher potential profit margins.
Before setting up a trade, you would want to get a holistic picture to try to create the best odds for success and measure the potential risks/rewards of a trade.
Some of the things to help improve your odds
Historical market data around earnings
Application to analyze data
Gather Historical Earnings Data
Form an outlook based on reasonable research.
Evaluate Historical Price Moves Around Earnings
Research historical stock behavior around earnings for guidance and assessment of potential moves.
Analyze Earnings Option Strategies Outcomes
Check how different options strategies performed historically and what were best entry and exit points.
Make a Risk/Reward Decision
Check how the options prices currently line up and if the risk premiums justify the potential risk.