Options Trading During Earnings Season

Earnings season is one of the best times for options trading.  I know that may go against the conventional wisdom, but let me state my case and then you can be the judge.  I approach trading the same way everyday.  The charts/technicals guide me to the best trade setups, then it’s up to me to find the best price/time combination for a nice payoff.  Whether an earnings release is in the way of my thesis is irrelevant, because the technicals are telling me in most cases whether price is going up or down.   I don’t game a stock over earnings but there is a great advantage in trading around these reports IF the technicals are in alignment with the direction you believe is correct.

Did you see the reaction post earnings from Google?  How about Facebook?  Or even Apple?  Yes, these names moved significantly but it is what the market did that was more interesting.  Google was blasted the following day but the market was up. After Apple reported a better than expected quarter (stock was up a huge 5%) the market hung around the flat line.  And then there is Facebook, which smashed estimates and vaulted 27% the day after, yet the market was looking to get creamed the next day.  How about Expedia this past Friday?  Hammered post earnings, yet the market squeaked out a win.  So why am I telling you this?  Because stocks react on their own ‘news’ and merits, as they should without any macro or market influence.  This is generally the result of a market with little correlation, a market of stocks is a great stock picking environment.

If the charts and technicals are in alignment with my thesis it allows me to use my skills to game a good probability trade.  Should IBM be punished after a stellar earnings report if news from Japan is creating market volatility?  What if Coke misses on numbers but the market is paranoid about risky equity securities and wants safety – and Coke shoots higher.  As an options trader I have to thread the needle to make gains without the influence of noise, and since time is of the essence I cannot afford to wait for that influence to subside.  The clock is always ticking on option plays.

So, with a market now less worried about exogenous events occurring (VIX down under 13% and has been trending lower) there seems to be quite a bid under stocks.  That won’t last forever, but for now I will take advantage and trade what the market will give me – an opportunity to pick stocks.