for the first quarter is almost here, which presents opportunities to sell high .
What are some of the things that traders should be aware of when looking to trade earnings? For starters, IV expands before the announcement but not at the rate of. IV collapses following the announcement. More can be found in the Market Measures segment from July 24th, 2015, .
IV does expand before an earnings announcement, but contrary to the claims of some, buying volatility going into earnings and then selling prior to the announcement is not a smart strategy. There are several Market Measures segments that examine this:
1)from July 7th, 2015.
2)from July 14th, 2015.
3)from July 15th, 2015.
The market will price in anfor the stock going into earnings. The market will adjust the option prices to that expected move as the earnings date approaches. This leads to an artificial increase in IV due to the number of decreasing.
A graph of theafter an earnings call was displayed. The graph showed that this makes trades ideal. When doing so it is important to wait until the end of the day before selling premium. This is because the trade should be "centered" around the expected move.
Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the valuable takeaways and a better understanding of how volatility acts going into and coming out of an earnings announcement.