The Great Cryptocurrency Conspiracy of 2018....The truth, the whole truth, and nothing but the truth about cryptocurrencies—and how Wall Street and Washington are covering it up....Register Here for this FREE Event

Monday, July 23, 2012

Using Options to Trade AAPL Earnings

From guest blogger J.W. Jones.....

Trading stock around the times of earnings releases is a notoriously difficult operation because it requires accurate prediction of the direction of price movement. Wrong predictions can expose the trader to substantial loss if large unexpected moves occur against his position.

Because of the risk associated with these events, many traders use options to define their risk and protect their trading capital. The purpose of my missive today is to present several approaches to using options to capture profits during the earnings cycle and to help present the logic and call attention to a major potential pitfall of using these vehicles in this specific situation.

It is essential to recognize that as earnings announcements approach, there is a consistent and predictable pattern of increase in the implied volatility of options. This juiced implied volatility reliably collapses toward historical averages following release of earnings and the resulting price move.

A real world example of this phenomenon can be seen in the options chain of AAPL which will report earnings tomorrow afternoon. Here are the current options quotes tables and how we will trade them.... > "Using Options to Trade AAPL Earnings"


Get our Free Trading Videos, Lessons and eBook today!

No comments: