The next earnings season is just round the corner and many are waiting to place their bets on the releases. Leverage using options on the earnings announcement hoping for a big catch when the stock gaps is the “No.1 Options Trading Trap” that most options traders fall into and are unaware of.

Many naive options traders and wannabes who have been misled into playing earnings doesn’t know the dangers that they are facing and those trainers who taught them to play earnings are sending them to hell. It is a real killer. Next time you hear this, you better run fast.

These people sell their seminars on “fairytales” which could ruin other peoples’ lives as they are gambling their life savings away. They exploit on human greed, even though many people knew that most of the “Get Rich Quick” offers are usually scams, yet most people still want to try. That’s what the bait con artiste use every time. It always works.

It is my duty as a trainer myself to expose the hidden dangers to the public and alert them of the consequences.

  1. High Risk Exposure - after the earnings are released, the IV will immediately shrink often know as “volatility crash”. The options premium will lose its value so much that if there is no substantial movement in the stock price to push the option deep in-the-money to cover the losses, even it gapped in your favor, and you can still lose money.
  2. Gambling – betting on earnings is all based on predictions just like playing baccarat, you bet on either banker or player base on intuition or gut feeling. Even with positive earnings the stock still can go down, past earnings does not guarantee that the same outcome the next round.
  3. Addictions –You will be obsessed in finding jackpot trades. The amount of excitements you get out of the one strike of a chance winner can get you addicted. Just like drugs, addicts are after the “high” effect.
  4. Mood Swings – the emotional implications are just too dangerous for anyone to handle. It can affect your life and family. The amount of stress can be damaging to your health as it screws up your mind. You will develop an “irritability” personality and become an angry or impatient person.

The truth about earnings is that they are very difficult to predict. Even companies themselves often are unable to forecast their future accurately. They take measures to ensure their earnings are right on target. What most investors don’t know is that companies sometimes “manage” their earnings to meet analysts’ expectations and we should not give them more respect than they deserve when assessing their estimates. Past earnings records do not guarantees future performances. Very unfavorable risk / reward ratio. All the odds are against you.

“An important key to investing is to remember that stocks are not lottery tickets” – Peter Lynch

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