Earning news annoucements
Options Application during important events/news
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What happens in the market during earning news announcements?
When earning result is in expectation of market then nothing happens
When earning results are poor then we see sharp decline in market.
When results are good then we see sharp rise in market.
So we can use any strategy which is for range out-bound. As we discussed in option strategy section.
For this type of situation, these are the strategy which are suitable..
long straddle
Long strangle
short call butterfly
To further refine this strategy:
Select stocks which is more volatile
Do a backtest on past earning result and see how much this stock moved
When to enter: 1 week/2-3 days before announcement(some people choose to enter 1 day before)
You have to choose option when it is the most cheap. Sometimes option premium rises prior to announcement because of big move anticipation.
Similarly, if you buy too early then because of time- option could be much pricier.Which strike price to choose: ATM or long bias then lower ATM(here call will become slight itm and put will become slight otm)
Expiration: more than 30 days or next month atleast.
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