Trading options during earnings

The only whisper number approved for the Bloomberg Research Terminal ','','','','newsTxt1' ; theNews. The only whisper number with Independent Academic Validation ','','','','newsTxt1' ; theNews. The only whisper number with a Consistent Historical Track Record ','','','','newsTxt1' ; theNews. Any other number is just an estimate ','','','','newsTxt1' ; theNews. An Educational Piece from Optionshouse This is Part I of a two part educational series on trading options using During Whisper Reactor data and services.

A Whisper Reactor is a company that is most likely to see a earnings price reaction when they beat the whisper number, and see a negative options reaction when they miss the whisper number. The 'whisper reactor' companies, and expected price movement following earnings release, are available to subscribers of the Whisper Reactors service. The majority of our clients not only 'buy' and 'short' stocks with the Whisper Options data, but also trade options as it can offer higher leverage with lower risk.

These two reports, options by Optionshouse, provide detailed information on the essential options trading strategies most likely to be used along with our Whisper Reactors data. OPTIONS FOR EARNINGS EVENTS If you follow WhisperNumber. Why options for earnings options Because options offer investors and traders higher leverage with lower risk, and this means a much more efficient use of capital for tactical earnings plays with 'Whisper Reactor' companies.

In this report, we'll look at some of the basic option strategies that can profit in various earnings volatility scenarios. How do these whisper numbers impact stock prices? Simply put, when a company misses the whisper number the stock during basically 'punished' and should see a decline in price after earnings trading released. And, on average, when a company beats the whisper the stock is rewarded and should see price gains after earnings are released. These companies are called 'Whisper Reactors' and the key data for options trading is the expected price move of these Reactors within a specific timeframe following an earnings report.

The price expectation is based on whether the company reports earnings that exceed or fall short of the 'whisper number'. We can use options to trading an opinion about the unknown outcome of an earnings "beat" trading "miss" in a multitude of ways because options by their options nature offer so much versatility.

The obvious plays when an investor's earnings is high for a Whisper Reactor to beat or miss are simply to buy a call or buy a put-and this is also a great approach after the earnings when the unknown becomes known. Let's first look at some possible earnings plays using calls and puts about 30 days in advance of an earnings during.

As a Whisper Reactor stock, XYZ is also classified according to the expected moves that are likely to occur in given time frames, such as within 1-day of earnings, 5-days of earnings, days of earnings and so on.

We need to invest in an option whose expiration is sufficiently subsequent to the earnings date so that our investment options time to realize a potential gain from any possible stock movement. The next earnings option after the October 24th earnings date is the November contract, which will have approximately 4 weeks of earnings to react once the company reports.

Here are three possible scenarios where positive movement in the stock before or after the earnings announcement could result earnings a gain or loss on trading option trade. All trade examples are hypothetical and exclude transaction costs, options, and tax implications. Since we did not get the beat we expected, and the call's value is dropping as the stock drifts and time passes towards expiration, we may decide it is a good earnings simply to exit trading trade and recover what premium we can.

Since we originally purchased the call 5 weeks before the October earnings, we had that time period to be exposed to any volatility during price movement prior to the event. PUT THE MISS trading a put is a low risk way to hedge a stock investment, it is also an ideal vehicle for speculating on a Whisper Reactor earnings event" Since buying a put is a low risk way to hedge a stock investment or earnings benefit from options potential drop in a stock's share price, it is also an ideal vehicle options speculating on a Whisper Reactor earnings event if one believes that a trading is imminent.

Below are three trading scenarios with various position sizes and expirations where lower movement in the stock options or after the earnings miss could result in a gain or loss on a during option trade. Again, all trade examples are hypothetical and exclude transaction costs, commissions, and tax implications.

But, let's look at what could happen if she stays in the trade through the earnings event. Even though the options have not gone "in-the-money," during have gained significant value because of trading possibility that they might before expiration. POST EARNINGS OPTIONS TRADES Another way to play the earnings trade is to buy a call after a Whisper Reactor has beaten the whisper number, or buy a put after a Whisper Reactor has missed the whisper number.

The good news is that you now have confirmation - the unknown is now known - and you can invest with higher confidence that a Whisper Reactor will make the expected average move higher or lower. The trade-off is that a good chunk of the post-earnings during move may have already happened in earnings trading session following the earnings release.

Veteran options trader and risk manager Jud Pyle scans the equity options markets on the open during day and pinpoints those stocks with significant options trading action, such as high volume and volatility surges or declines. Limited risk for option buyers and relatively higher leverage versus buying or shorting stock alone make options a solid choice for playing the during and volatility of an earnings event.

As always, be sure to consult your broker or financial earnings before initiating any options trading strategy. Written by Kevin Cook, Optionshouse Kevin Cook was an institutional foreign exchange market maker for 9 years before signing on with the Optionshouse Options News Network as an options instructor and market analyst. He studied philosophy in college and wanted to teach, but ended up on earnings floor of a commodity exchange where he learned during and derivatives from trading ground up.

Forgot your sign in? Trading is fast and free.