Earnings trades are advanced options trading strategies offering massive income potential vs limited risk. Constructing an earnings trade will ask to buy straddle or strangle options.
I remember times when I was still learning a lot about options I was wondering what are all those iron condors, butterflies, straddles, and strangles.
I thought selling options premiums on dividend-paying stock already is the best thing invented and why bother with something else than put or call options?
Fast forward - I still think - why bother?
But, I must admit time after time I do the so-called earning trades, mostly in companies I'm holding long stock.
What Is an Earnings Report?
A quarterly earnings report is a quarterly filing made by public companies to report their performance. Earnings reports include items such as net income, earnings per share, earnings from continuing operations, and net sales. By analyzing quarterly earnings reports, investors can begin to gauge the financial health of the company and determine whether it deserves their investment.
What Is a Straddle?
A straddle is a neutral options strategy that involves simultaneously buying both a put option and a call option for the underlying security with the same strike price and the same expiration date.
When to Enter
When setting up the long straddle, the first question to consider is when to enter the trade. Some traders will enter into a straddle four to six weeks prior to an earnings announcement with the idea that there may be some price movement in anticipation of the upcoming announcement. Others will wait until about two weeks prior to the announcement. In any event, you should generally look to establish a long straddle prior to the week before the earnings announcement.
From my personal preferences, I have entered earnings trades both 1 day before the earnings announcement and a few weeks before. Entering a few weeks before might give you better premium, but in general when looking for massive price movement entering one day before also works.
Subscribe to Covered Calls with Reinis Fischer to learn more