The earnings season starts in the month after these companies’ fiscal quarters. Therefore, this season falls in October, January, July, and April. These firms need more time to prepare their earnings reports after every quarterly accounting period.
During this time, traders can examine the reports and determine the projector of certain stocks. For more information and strategies on how to trade earnings, please read on.
Earnings Season: What to Look For
The earning season is one of the busiest periods for folks trading earnings options. So when analyzing these reports, some traders love calculating a firm’s EBT (earnings before taxes). Others like focusing on the EBIT (Earnings before interest and taxes).
So traders who love how the options earnings plays focus on earnings before amortization, depreciation, taxes, and interest. These measures can indicate a firm’s level of profitability.
These details will help you determine how to trade earnings season. Fundamental analysts focus on the quantitative and qualitative aspects of the business. And It can help you set your pre earnings option strategy.
Strategies for Trading Earnings Season with Options
The earnings season can leave lots of investors anxious, especially the people who don’t know how to play earnings options. After all, everything can change when companies release their earnings report. So here are the best options strategy for earnings:
- Straddle: this strategy includes a trader buying a put and a call on certain stocks with the same expiration and strike date. With straddling, you can benefit from a huge move in either direction.
- Strangle: this strategy resembles straddle, but the main difference is the strike prices of the put and call are different. You can purchase a call at a price lower than the current price of the stock and vice versa.
- Put ratio back spread: this bearish strategy includes an investor selling more puts and buying puts at an even lower price.
IV Crush After Earnings: Understanding and Avoiding Losses
Before a company’s earnings announcement, the Implied volatility of an option is usually high, thanks to uncertainty. Luckily, traders know that every stock has the potential for a huge move after the earnings announcement. Unfortunately, we don’t know the direction of the possible move.
Therefore, investors who understand iv crush earnings will purchase put options to protect their investment. So bullish speculators will buy calls and capitalize on the huge uptrending move.
This move increases the need for call and put options, which will increase the IV value of certain options. But after the company announces the earnings, the increased IV will come back down since the demands for these options will have dropped.
This is the main reason why the implied volatility drops after a huge event with uncertainty. So when the outcome is known, then the uncertainty is eliminated.
Thinkorswim Earnings: Tracking Dates for Trading Earnings
Irrespective of your unique trading strategy, you’ll always have to deal with uncertainty. In fact, some of these situations will catch you off guard, but with proper planning, that won’t be an issue when playing earnings with options. Depending on your trading style, the earning reports of a particular company can affect your position.
Luckily, the Thinkorswim platform comes with calendars and tools for tracking the earnings date. To track these events, you can go to TDameritrade.com and click the calendar. Next, click any of the dates to access a list of the earnings releases and estimates, among other news.
You can easily access the thinkorswim earnings calendar by going to the “Marketwatch” button and then picking the calendar. And for more details of certain stocks, simply click the “analyze” tab and then “Earning”.
On that page, you can get more earnings information on certain shares, including their historical prices.
How to Prepare for Earnings Reports
When preparing your company’s earning reports, you should include the following details. You should include details on tax identification, period, firm, and the business’s location. These details are followed by the company’s balance sheet, flow statement, and earnings statement. Just make sure that it discloses the financial position of a company.