Earnings season is a very volatile time period for stocks, and over time I’ve learned one thing about trading around earnings releases… you can count on an increase in price volatility after the event happens every time, but you can’t reasonably predict what direction a stock will go after the event. So how can we profit from this in the options world? Well, it’s not as easy as just going long option premium because the way the options market works, is option premiums get inflated as a company event, like an earnings release, is anticipated. (more…)
This is kind of a hedge against my position that I posted today on ABX. In that trade, I am clearly quite bearish, but history leans heavily towards a positive reaction to the FOMC announcement. I can be skeptical all I want but it probably makes sense to have a little coverage. (more…)
Monsanto has been consolidating for a few weeks in a narrow range, and I am expecting for a large move after the earnings release on Wednesday. By purchasing this straddle a few days ahead of the earnings release, it gives you a few opportunities to profit. Between now and Wednesday, the straddle’s extrinsic value should increase as Implied Vol is driven up by traders wanting to take a position in the puts or the calls to participate in the earnings fall-out. As of Friday, the IV for this straddle was 29%. You could see a slight increase in the value of the straddle as the IV increases. To be profitable by April expiration, based on Friday’s share price of 79.76, you’d need to see the stock move either lower than 75.48 or higher than 84.04.
Options investors have a unique ability to profit in the market no matter which direction it moves. A straddle is one of strategy for making money outside a bull market. These trades are market neutral, have an extremely low probability of maximum loss and pay big returns when the market moves a lot. (more…)