Option Strategies for Earnings Announcements: A Comprehensive, Empirical Analysis

Plenty of data, but the meaning is one - you can loose. But you can win, too. Today when markets are changing every week/month it is hard to predict what will happen. Testing system on data from 10 years back can present false results in one year ahead. For such short periods and unpredictable events it is very probable that presented strategies will behave quite different. One can read this book to see one of trading methods/systems so one could improve his own trading methods. But thats all.

Excellent book on options for anyone serious about option trading during earnings. A lot of rigor was put into their research process before the authors made any conclusions.

What most books on investment or market trading do not teach is empirical analysis. Some of this has to do with marketing. It is easier to tell the reader to "follow the lessons of Warren Buffet" than to describe the process of analyzing stock performance and looking at historical returns to verify that this analysis would have succeeded in the recent past. Investment and trading books on exchange traded stock options tend to be even worse than those on stocks. They tend to either be books in the vein of "get rich with stock options" or highly mathematical works that assume that there are no transaction costs in options trading. Option Strategies for Earnings Announcements is a practical book that demonstrates how analysis on option trading strategies can be performed. One of the early chapters in the book discusses the issue of option bid-ask spreads and the issue of trading costs. The topic of the book is options trading around regular market events like earnings announcements. The cover material, influenced by the publisher no doubt, implies that after reading this book you will be able to make money trading options around corporate events. A more accurate description, which I suspect that the authors would agree with, is that this book will give you the foundation you need to understand how to do the work you need to develop successful options trading strategies around corporate events. The author point out that the past is not a perfect predictor of the future, but the past is all we have. Developing a successful trading strategy involves carefully looking at past data and doing the statistical analysis to determine whether the strategy has a chance of being successful. Most investors are best advised to invest in a basket of index funds consisting of some mix of stock and bond funds. The analysis that is outlined in this book is not something that most people either can or will want to do. I don't recall a discussion of the target audience for this book. In my opinion this book is targeted at small investment funds (which can make use of exchange traded options) or serious traders. In order to apply the analytic techniques outlined in this book the reader needs, at a minimum, a solid mastery of Excel or, even better, experience with R, MatLab or Python. One of the challenges in learning about options and options trading is that there can be a huge gap between theory and practice. In options theory one of the things that students learn is that it is never profitable to exercise a call option early (for a stock that does not pay dividends). The trading strategy outlined in this book is to buy options just before an anticipated corporate event, like an earnings announcement and then close the options position soon afterwards. While it may be best to close a put position, in theory a call on a non-dividend paying option would be held to maturity. I did not notice that the authors dealt with this issue. Perhaps because it makes the analysis easier since you can pick a period and calculate profit and loss. If option exercise periods are staggered the analysis may become more complex. As the authors point out, the market for exchange traded options in individual stocks has limited liquidity. This is not a market that a large fund could invest in since large option purchases would have huge market impact and move the bid-ask spread. Smaller traders can trade profitably in this market. This is not a book that gives the "secret for profits in stock options", but rather a book that shows how to do the analysis you need to do to develop strategies that have a probability of working. This is not easy, but if it were easy, everyone would be doing it, wouldn't they?

Great product! Fast shipping! Satisfied customer!

I am a beginner to intermediate level options trader. Although I learned from the book, I was expecting more of an instructional type options strategy book. Instead, it was written for more of an intermediate to advanced level trader with limited instructional value.

Review of Option Strategies book "Option Strategies for Earnings Announcements" builds on prior work by the same authors. Their previous book, Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions , sought to evaluate the suitability of certain trades around earnings announcements based on historical data. For this book, the authors continued to evaluate their database of stock and options daily closing price data from 1996 to 2009, merged with a calendar of earnings announcement dates. The book presents the results of exhaustively mining the data to explore what-if scenarios for trading options around earnings announcements. For example, what are the odds that buying near-the-money options the day before the announcement and selling them the day after would make money. They do this for long and short call and put positions. They also explore how the results would change if options with further expiration dates were selected or options were held for a longer period of time. They also provide data on how the results changed by year, which is insightful in that it generally shows that trading options around earnings has become slightly more lucrative over time. The authors then go on to explore more complicated option strategies such as straddles and puts near earnings announcements. They also evaluate taking advantage of increases in volatility prior to earnings announcements, and post-earnings drift after announcements. The third section of the book considers how characteristics of the underlying stocks may affect the results. For instance, do high P/E stocks and low P/E stocks, and their respective options, react differently at earnings time. Similarly, how does market capitalization impact the analysis. Finally, does the company's sector or type of business impact option trading at earnings time. There are some limitations to the authors' approach. Since they apparently did not have data about whether the earnings announcement occurred prior to market open or after market close, the earnings date itself is not analyzed; rather, the trade is assumed to be open the entire day of the earnings announcement. Also, since only closing price is evaluated, intraday price changes are not considered. Finally, the sector analysis is unconvincing because the sector that seems to have performed the best at earnings time (with respect to the various trading strategies discussed) is the consumer staples sector, which is acknowledged to be due to "quite a few surprising announcements that generated large negative returns." One must consider whether such events are likely to continue prior to trading this sector on the basis of the work in this book. All in all, the book serves as a useful benchmark to gauge how a particular earnings-related trading strategy might fare. One can use this book as a reference to look up probabilities of success of certain strategies. I am planning to use the book in this manner.

It seems that many finance books are long on theory and short on actionable ideas. This book is an exception to that general rule. It provides significant back-test data that helps options traders decide which approaches to use for trading earnings. I base my rating primarly on whether I am confident that I can make money on the strategies. I find that the data supports many of the strategies employed by professional traders, like those on TastyTrade. Specifically, the data presented in the book supports selling short strangles prior to earnings announcements and closing them after the announcement, and making directional trades after earnings announcements in certain circumstances. The book uses data to increase the probability of success for each of those trades by using certain industry criteria, market-cap criteria, liquidity criteria, etc. While selling short strangles generally requires a large amount of capital (and/or a portfolio margin account), the post-earnings directional strategies are generally less capital-intensive. In other words, you can still benefit from this book even if you don't have a $125K+ portfolio margin account. The book is a big improvement over the authors' prior work Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions which I also reviewed. If you still think you can figure out which way a stock will move after an earnings announcement, you need to read their prior work. Interestingly, I am not sure the data in this book supports the approach the authors used in their prior book. These trades are still risky and still require you to closely monitor the market. While the authors do not explicitly say so, in order for the data to be validated in practice, the necessary implication is that it is necessary for individuals to have a high number of occurrences (trades). You can't make three trades and expect for these strategies to work. It might work, but it also might be a huge loser. You will need to make hundreds of trades over time in different market environments in order to get comparable long-term averages. And the only way to do that is to keep your trade size small. Otherwise, you run the very real risk of getting blown out and losing all of your money. I've been trading a modified version of their short strangle strategy for several years and can tell you that you WILL have very large losers that will make you want to vomit and quit. That will happen every single earnings cycle. It is that point that you just have to suck it up, play the odds, and put on another trade. Overall, I find it can be a profitable approach over time but it is not without its fair share of heartburn. But that isn't the only strategy in this book and you may find another strategy that works for you (such as their earnings momentum trade, which they call "Post Earnings Announcement Drift"). On the downside, the book is written like a slightly dumbed-down version of a finance paper you might read in a scholarly journal. It is dense and is not for the beginning trader. It goes through a lot of data to prove single points. For example, an entire chapter was devoted to liquidity risks: bid-ask spreads. The entire chapter could be summarized with "these strategies seldom work when you trade illiquid options because the odds are not in your favor due to slippage." Any trader experienced enough to be considering these strategies ought to already know that, but the authors want to prove it with data. On the plus side, each chapter uses a similar organizational template so that you can just skip through some of the boring material and get to the conclusions and summary data.

I received this book yesterday and finished it this morning. You don't need to read the book. I can conclude this whole book in 1 line: 'All option strategies close before and close after earnings are losing strategies except if you trade ALL stocks in a defined sector before earnings who have a low implied volatility / PE ratio for the long straddle and the reverse for the short straddle' I don't know why 1 sentence should cost $49.99.-