Tuesday, January 22, 2013

How to Trade Options Around Company Earnings....Example Apple AAPL

The hallmark of a professional option trader is the ability to use a wide variety of trade structures in order to exploit opportunities to profit from specific situations the market presents. One of the opportunities routinely presented multiple times yearly is the impending release of earnings.

Underlying the logic of earnings trades is the stereotypic pattern of increasing implied volatility of options as earnings approach. This pattern is so reliably present that experienced options traders can recognize the approximate date of an impending earnings release by simply perusing the implied volatility of the various series of upcoming options.

As a real time example of this phenomenon, consider the current option chain of AAPL which will report earnings after the market closes on Wednesday, January 23rd.....Let's look at how this sets up.

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