Earnings season is upon us, and usually, I receive
several questions asking the best approach to
using options to trade underlyings.
Is it better to buy or to sell options?
My answer is neither.
There’s no edge with trading earnings.
It’s taken a lot of experience and research for me
to learn that.
75% of the time, the market usually priced the
underlying move perfectly within the expected
However, there’s the 25% chance it doesn’t.
When it moves outside the expected priced range,
that’s when things get ugly.
To name a few that have down that in the past are
companies like Amazon, Netflix and Google.
When prices move outside the expected range, they
usually move about 2-3x the expected move.
Those moves cause massive drawdowns to option
sellers and wipe out all the other winners.
Or gains for option buyers who may have been long
options, which only gets them back to break-even
for all the other losses they had.
So what that means is that no matter if you’re a
buyer or seller of options, it’s a zero-sum game
in regards to trading earnings.
Since there’s no edge with trading earnings, I
think they should be avoided.
Success in the market is not about being more
right; it’s about avoiding costly mistakes.
Some people trade earnings only to stay engaged;
I will from time to time, but it’s very rare at
If you’re inclined to trade earnings to stay
engaged and understand there’s no edge, then look
for trades with a 1:1 risk/reward such as debit
Stay consistent with the amount of risk per trade.
However, If you want to learn how to have an edge
trading options so you can avoid losing money
during earnings season then what you learn in this
book will teach you exactly how to do that.
To your wealth, freedom and options!