Home / Business and Economy / Earnings Moves: Trade Smart with Options
Earnings Moves: Trade Smart with Options
13 Dec
Summary
- Options strategies offer defined risk for trading earnings volatility.
- Expected move predicts stock price range based on implied volatility.
- Average earnings move provides historical context for stock reactions.
Earnings season presents significant market volatility, often leading traders to utilize options for defined-risk strategies rather than direct stock trading. Understanding the options market's pricing of expected future price movements is crucial, as actual earnings results cannot be predicted. Barchart's analytical tools provide a statistical advantage by highlighting these expected moves.
Rick Orford's instructional video demonstrates how to effectively trade earnings using defined-risk options, with Nvidia serving as a practical case study. While most companies report quarterly earnings in January, significant announcements from Oracle and Broadcom continue to influence markets, making it an opportune moment to explore these trading methodologies.
The 'expected move' metric forecasts a stock's potential price range by analyzing implied volatility in options. It is derived from 85% of the at-the-money straddle premium for the expiration date immediately following the earnings report. This figure reveals the market's anticipated move size and whether options premiums are relatively cheap or expensive, guiding the suitability of risk-defined strategies.
