Lesson Overview

When To Place Trades

Because earnings trades are shorter in duration or timeline it's important to understand why we need to focus on very specific time frames for our trades.

More then any of the other general strategy that we use during the month, an earnings trade needs to be placed during a specific time before the actual company announcement.

By closing the gap in the time between trade entry and company announcement we minimize the risk of the stock making a big move up or down in advance that makes us unbalanced. This also allows us to completely focus just on the drop and implied volatility which is where we gain our edge and making these types of trades.

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  • Erik

    Kirk:

    At the very end of this video there was an AH-AH moment for me. I noticed that the MON Jan3 15 option chain volume exceeded the open interest especially for the OTM options by a factor 2 or more. It tells me a few things but also presents a couple of questions as well. It shows me that there is a ton of trades or professional traders doing the earning play a day before the news….either long or short. Knowing that, this is really an IV play, who in their right mind would want to be on the other side of this trade, doing a directional trade, trying to overcome both the “crush” and the b/a spread…in excess of 10%…in this case. By the way, does the b/a spread for these weekly options decrease going into earnings with the best spread the day before earnings? Thanks again, Erik

    • Yep the best opportunities are the day before earnings for sure (spread and volatility wise).

      • Erik

        Kirk:

        Any thoughts on why other professional traders are on the other side of these short IV trades, i.e. going directionally long? I am just trying to crawl into the minds of these folks especially with the probabilities going against them from the get go? Is it a lack of knowledge or just a behavioral habit/psyche or both? Thanks Erik

      • Just betting directionally for big moves.

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