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By trading on corporate earnings, investors can reliably profit in both up and down markets, while avoiding market risk for nearly the entire quarter. In this book, two leading traders and portfolio managers present specific, actionable techniques anyone can use to capture these sizable profits. Ping Zhou and John Shon have performed an unprecedented empirical analysis of thousands of stocks, reviewing tens of millions of data points associated with option prices, earnings announcement returns, and fundamentals. Their massive analysis has identified consistent opportunities associated with focusing on the magnitude of the market’s reaction to earnings, not its direction. Option Trading Set-Ups for Corporate Earnings News offers concrete guidance for improving the likelihood of making correct forecasts, and managing the risks of incorrect forecasts. It introduces several ways to exploit option trading opportunities around earnings news, discuss crucial issues that most retail investors haven’t considered, and explore aspects of earnings-related option trading that have never been empirically examined and documented before. For example, they identify hidden patterns and potential opportunities based on valuation, industry, volatility, analyst forecasts, seasonality, and trades that immediately follow earnings announcements. Simply put, trading on earnings reports offers immense profit opportunities, if you know how. This book provides incontrovertible facts and detailed strategies, not just theories and anecdotes!
Part I: Introduction 1
Chapter 1: Earnings Announcements: Opportunities and Risks 3
Chapter 2: Option Strategies for Earnings Announcements: An Overview 11
Chapter 3: Liquidity Risk: Bid-Ask Spreads 23
Part II: Options Strategies for Earnings Announcements: Let the Data Speak 39
Chapter 4: Bullish Directional Trades 41
Chapter 5: Bearish Directional Trades 59
Chapter 6: Long Volatility Trades 79
Chapter 7: Short Volatility Trades 95
Chapter 8: Buy Volatility before Earnings Announcements 109
Chapter 9: Ride the Post-Earnings-Announcement Drift 121
Part III: Advanced Analysis: Improving the Odds of Winning 135
Chapter 10: Implied Volatility 137
Chapter 11: Historical Earnings Announcement Returns 151
Chapter 12: Market Capitalization 161
Chapter 13: Valuation 169
Chapter 14: Industry Effects 183
Chapter 15: Enhanced Strategies 195