Wednesday, April 12, 2006

Check the Earning and Bet on the Potential

The Best Time for Option Players

The earning season has come! It is a good opportunity for option traders. An option trader should not miss this big game.

Here is our strategy:

1. Check the incoming Earning Calendar for stocks that you know or you believe would be hot at the earning.
2. Study those stocks and see whether it can release a better then expected earning.
3. Watch the stock for a while and see if there is any positive sign for a possible up.
4. Buy some call options in the nearest expiration date 2 or 3 days before the earning announcement
5. Sell a portion of your calls when the option price up before the announcement. (optional)
6. Wait the earning announcement.
7. After the announcement, sell all your options.

You should separate your investment into pieces. For each stock, you only invest one piece.

In general, a good earning will move the stock price up a few percents. To option player, it means over 100% margin. In case you were wrong, if you sell your call quickly, you should limit your lost to 50%. Suppose you got a 50:50 chance, you would gain at the first for 100% and lost the second at 50%, when you invest in even, you should have a 25% margin for all. If your judgment is all correct, you will get a much better return in less a week.

For the whole earning season, you can play it several rounds. You can imagine how much will be your return!

Wish you all good luck!


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