If your excitement this Fall revolves around corporate earnings as opposed to picking out a Halloween costume you can likely count yourself an official tastytrader!
Publicly traded companies release earnings four times a year (once a quarter) and Alcoa recently kicked off the action with their third-quarter report on October 11th.
Because earnings play such an important role in volatility trading, the tastytrade financial network is proud to bring you a series focused entirely on this topic - The Earnings Show! - which airs Monday through Thursday starting at 2:30pm central on tastytrade live.
If you are new to the earnings game, we recommend you review a previous post on the tastytrade blog which provides an overview of the strategy.
The basic premise of the approach is to leverage the tendency of volatility to contract in the wake of earnings.
For a comprehensive rundown of the earnings trade we recommend not only the blog post referenced above, but also starting with the kick-off episode of The Earnings Show series and working your way forward.
For traders with more experience in this area of options trading, an episode released prior to the start of the third quarter 2016 earnings season is another segment well worth your time.
On the show, host Tony Vitale reviews some of the key factors to keep in mind when filtering for earnings-related trades. Liquidity is of course one of the most important criteria when selecting any volatility-based trade, and earnings is no different!
Additionally, Tony discusses why tight option markets (small spread between bid and ask) are also preferable. It's due to the aforementioned reasons that weekly options containing an earnings release may be a prudent choice for deploying such trades.
Tony also highlights why he likes to trade options with high Implied Volatility Rank (IVR) - a metric that is of course well-known to the tastytrade community.
It’s entirely possible that earnings-focused trades do not meet your specific risk profile. However, understanding this approach may help you unlock additional opportunity in your portfolio due to heightened awareness and understanding of the marketplace.
We hope you'll take the time to brush up on the earnings trade when your schedule allows.
And if you can't find what you are looking for on the tastytrade website, don't hesitate to reach out directly at email@example.com with any questions or comments.
We look forward to hearing from you!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.