Many so called “options gurus” like to predict the future especially on earnings. When it came true, they use it to promote their super natural abilities. And it is unbelievable that the amount of people who would want to believe in them. The only reason that I can think of for doing that is, they want to increase their popularity so that they can sell their products, services or seminars. They are just selling you the excitements you can get from playing earnings.

But when the predictions did not materialized they keep quite, earnings carries too much uncertainties and therefore does not provide the edge to make any accurate predictions. They are the No.1 options trading trap.

This is just gambling; even stocks with excellent earnings get tortured after beating estimates and stocks that rallied after posting a losing quarter. My conclusion is that earnings reactions are too incidental and happens at random, therefore impossible to establish an effective system to deliver consistent profits.

After years of research, trying to find a way around to play earnings, I’ve found that the best way to capitalize on them is to only buy them after the announcements. The logical reason behind it is that the Implied Volatilities are usually very high just before the announcements and shrink after that. Just like sex, you reach climax during an orgasm and becomes a worm after that.

I’ll look for support and resistance levels, wait for reversal candlesticks opportunities and once they are confirmed reversal, I’ll buy the options then and they are usually cheap or undervalued as not many will pay attentions to them any more.

Experience smart options traders will use volatility to their advantage. Remember, trading is a zero sum game. If 90% of the options traders are losing money, you need to be the remaining 10% winners to make the money, which means that every nine persons will lose money to just one.

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed” - Benjamin Graham

Popularity: 39% [?]

Don't want to miss a thing? Subscribe to my RSS feed!




You Should Also Check Out This Post:

More Active Posts: