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At the time of writing this article, we’re deep into the middle of earnings season. Lately, I’ve been working on an earnings strategy and I wanted to share it with you today. This article focuses on a question that many traders ask:
How can I develop a profitable trading strategy?
To answer this question, we’re going to look at a strategy I’m currently developing, and how I’m doing it.
I’ve been working on this specific strategy because I know that earnings seasons provides a unique opportunity to make money.
The concept behind this strategy is selling options premium around earnings. This type of strategy is also known as a strangle.
Around earnings, the implied volatility increases, also increasing the options’ premium.
The goal is to sell premium for the inflated amount before the earnings announcement.
In a strangle, you are both selling a call option and a put option, ‘strangling’ price between it.
The idea is that after a company announces it’s earnings report, the IV in the options gets crushed…this is how we make money with this strategy.
This basically means that the premium in the options evaporates. Since premiums were higher when the options were sold, I can now buy them back at a reduced rate.
So to make money with this strategy, you need the price of the underlying asset to be trading between the strikes you sold at…
