Today I participated in our first in a series of half day webcasts with Investor’s Business Daily. One of my sections involved discussing the behavior of implied volatility around earnings announcements. This prompted a very good follow up question that we felt was worth sharing –
Would an earnings volatility play be to buy some near the money calls several weeks before the earnings announcement, then sell them right before earnings announcement to take advantage of the spike in volatility prior to earnings?
This is a great idea and could be profitable; however, you also need to take into account time decay and how it would work relative to your anticipated rise in implied volatility into earnings. I’ve noticed sometimes when there is a holiday close to earnings (think 4th of July) the implied volatility move seems happen more dramatically. I’m not sure if this is a factor of earnings season sneaking up on traders or not.