Trading Earnings: Potential stocks for options earnings trades

by David Jay on August 21, 2011

Trading Earnings:  Option Strategy to Profit from Earnings Announcements

Many option traders know that trading earnings provides significant profit opportunity. Watch the two videos below for a quick overview of how to select a shortlist of stocks for earnings trades.  I have found that earning trades are one of the most consistently profitable option trading strategies.

Trading Earnings:  Picking stocks for options earnings trades part 1

Trading Earnings:  Picking stocks for options earnings trades part 2

Earnings Calendar Trades – A short summary of how to select options to trade earnings releases

Earnings.com is the best earnings calendar around.   Use earnings.com in order to plan the week ahead.  Initially build a shortlist of stocks which show potential for options trading around the earnings announcement.

Stocks which make good candidates for earnings trades should be above a certain price.  In general it is best to select stocks which cost at least $10 to $20. This is because options commissions eat away at profits for low priced stocks and make trading earnings less profitable.

Earnings trade candidates must also be very liquid and “tradeable”.  This involves selecting stocks with high market capitalization, that have high option volume and option interest.  A critical factor in selecting stocks for earnings trades is the bid-ask spread.  Selecting stocks which have options with narrow bid ask spread.  Wide bid ask spreads can cause significant “slippage” and erode earnings.

Finally the most critical aspect of trading earnings is to select stock options which have an appropriate volatility pattern.  Earnings trades profit from a significant drop in volatility, so initially eyeball the historical stock charts to see stocks options which show a volatility crash.   Follow up with a detailed analysis to make sure that these options really show large volatility drops following earnings releases.

Trading Earnings This Week – A shortlist of stock options to trade

The following list is a shortlist of stocks which show potential as earning trade candidates for this week.  We will be carrying out more detailed analysis.   Please subscribe to our free option trade alert service (see the on the bottom right of the screen) and we will update you with our option trading picks after selecting the best and safest candidates.

Earnings calendar for potential earnings trades this week 22nd August 2011

The trades below are listed on the day the earnings trade needs to be opened.

  • Monday:
    • Medtronic (MDT) – Earnings release BMO on Tuesday 23rd August
  • Wednesday:
    • Applied Materials (AMAT) – Earnings announcement Wednesday 24th August after market close;
    • Express (EXPR) – Earnings announcement Wednesday 24th August after market close;
    • Guess (GES) – Earnings announcement Wednesday 24th August after market close;
    • TIVO (TIVO) – Earnings announcement Wednesday 24th August after market close.
  • Thursday:
    • Tiffany & Co (TIF) – Earnings announcement Friday 26th August before market open.
    • Aruba Networks (ARUN) – Earnings release Thursday 25th August after market close.
    • Omnivision Technologies (OVTI) – Earnings release Thursday 25th August after market close.
  • Friday:
    • LDK Solar CO (LDK) – Earnings release Monday 29th August before market open.  This stock is priced at around $5, however since the volatility is very high at above 200% it still is worth a look at for an earnings trade.

Trading earnings can be highly profitable for option traders.  We will conduct a detailed analysis of the stock options above and send out to our subscribers a list of the best option trades for this week’s earnings releases.

Please subscribe to our list on the bottom right of the screen and get the free option trade alerts!

If you have other ideas for earnings trades this week, please leave a comment below and we’ll be glad to participate in the discussion.


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