How To Trade Earnings With An Edge

Trading Earnings announcements can be a polarizing experience for traders. Picking the right stock, but most importantly choosing the right strategy is going to make all of the difference to a winning or blow out losing trade. With all of the upcoming earnings news for some tech giants like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), understanding how to trade earnings is very timely. Here are my tips to trade them.

Understanding Volatility

Everyone knows that volatility will spike as the earnings announcement nears. A Trader should use this understanding of increased volatility to his advantage. Specifically, trading using options provides an edge to use this volatility to your advantage. Now trading options provides many ways to trade them but not all strategies will be beneficial. One misconception is that a strategy like buying a straddle ahead of earnings will provide the advantage of having a position on either side, meaning that if a stock moves higher or lower once the earnings is announced, a trader will win. The reality is that market makers will price in this volatility, so most often a straddle will not be as lucrative as one might expect.

Trade Like A Pro Don't Try To Out Guess Them

Trading earnings isn't about guessing which direction the stock will move. What many traders don't always realise there are just as many trading opportunities once the news is announced as compared to setting up a trade just before its announced. A trade placed once the move has happened actually provides more evidence to trade on the winning side of the trade. Don't get caught only focusing on a trade prior to earnings, there are times that the trade just after the announcement can be a much better one.

A Trader can really benefit during the earnings season with good trading choices. Big moves in the markets however means that a trader should gather good evidence to support good trades. Caution can serve a trader well to put the odds in your favor.