Rtading excitement of event-based trading and the enduring importance of earnings results converge once every quarter as earnings season plays out. Earnings season has the potential to be especially exciting for those option traders looking to take advantage of implied-volatility shifts.
Event-Driven Historical Price Effects
One bullish options strategy traders might employ ahead of an earnings report is a bull put spread selling a higher-strike trdaing and buying a lower-strike put to collect a net credit. If and when implied volatility is unusually high on the underlying's options, traders might be tempted to sell put spreads in lieu of buying calls. High implieds mean that options are naturally pricier, making premium-selling strategies potentially more attractive than premium-buying ones. There are, of course, important differences between bullishly configured strategies such as long calls and short put spreads.
Event-Driven Trading Strategies
Imagine stock XYZ is days away from its earnings report. The consensus estimate for earnings is 20 cents but a bullish trader believes the actual earnings number will exceed expectations, causing the stock to move higher. Trade the Size and Direction of Market Moves As with any options strategy, trading options on futures during economic news releases offers the benefit of defining your risk and reward when you enter the trade, and allows you to create strategies that do not solely rely on the trader having to pick the correct direction of the move and the size of the move.
Options have the benefit of allowing the trader to isolate one of the variables and reduce the factors that affect the profitability of the trade, allowing the trader to isolate the factors they want to trade. Rather than having to pick direction and size of the move, the trader can pick one or the other factors to trade. This strategy gives the trader more flexibility in constructing their trading strategies. Strategies such as, straddles, strangles and selling credit far out of the money can be employed with options on futures just like they are used in equity options.
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An added benefit of options on futures is that most contracts have a Wednesday and Friday expiration. This means added flexibility to traders, allowing them to fine tune expirations to events they are trading. Note on Holidays: Single-Symbol Analysis You can find a thorough analysis on the event driven insights for one symbol by visiting the report under each symbol's overview page. The menu item is on the left hand side under Tools. Stock Pattern Screener In addition to analysis for one symbol, you can view the stock price patterns as a screener, where you can compare results for all the stocks and timeframes we have available.
Using Filters At the top of the page you'll see the Filters, most of which correspond to the result statistics in the table. Explaining the Results The Event Info columns show you the designated event type and the timeframe for this result. The Next Event Info columns show you the date of the next occurrence of the designated event, as well as the number of trading days until that date. Hovering over the Next Event Date column might show you some more information on the expected event.
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A date marked with an orange "E" cata estimated -- we use this when we haven't received confirmation of Evvent exact date or time. The rest of the columns explain the result set, and can help you figure out the stocks that have had the best performance for the selected event type and timeframe. Avg Return is the average percentage return for the stock price over the specified timeframe. Median Return is the median percentage return for the stock over the specified timeframe. Using the median return can help counteract average returns that are skewed by 1 or 2 extreme results.