Don’t get Crushed through earnings

Hello, Power Profit Traders!

Trading options is a zero-sum game, meaning there will always be a winner and a loser on either side of a trade.

Trading through an earnings report and losing in spite of the fact that the underlying stock price went in your intended direction can feel like getting stung by the biggest bee in the hive – Ouch!

There is a right way to trade earnings. Understanding what Implied Volatility is and how it affects option prices is the first step on the path to successful earnings trading.

Implied Volatility (IV)

“Implied” Volatility is a metric that captures the market’s view of the likelihood of changes in a given security’s price. Traders use this tool to project future moves in price as supply and demand kick in.

Stock prices do not need to move in order for option implied volatility to rise or fall.

You’ve probably experienced the implications of IV in your own life. Have you ever been late to the ticket sales for an event only to find it sold out? Later on, you find “entrepreneurs” selling tickets at twice the original cost, and then the day before the event you find tickets being sold for five times their printed value!

Say what!! The day after the event you couldn’t give tickets away!

Option premiums work the same way. Options may be “fairly” priced according to general supply and demand, but then when geopolitical, economic and corporate events enter the equation – welcome anticipation and speculation; welcome Inflation!

Simply put – options with high IV are “expensive,” and options with low IV are “cheap.”

Options tend to become extremely expensive ahead of an event like earnings, but once earnings are announced – CRASH; Implied Volatility deflates like the pop of a balloon!

Now that you understand what high and low IV is, it’s time to trade events the right way!
There are two ways to capture the effects of IV in option trading. First, selling to open option contracts with high IV and then buying to close once IV has fallen, and second, buying to open options with low IV and then selling them once IV has risen. The latter approach is my focus, and it’s what makes my Operation Surge Strike strategy successful.

Using BRUTUS for IV trading

The software I call BRUTUS works hard and finds the IV events for us – taking the guess work out.

BRUTUS uses strong algorithms to identify IV Surge events, which are events like earnings reports that cause implied volatility to run up. Implied volatility rises ahead of earnings reports.

By entering trades ahead of earnings, we benefit from the massive influx of IV and then we simply sell before the notorious IV CRUSH – which can occur within minutes of the earnings announcement.

Event trading has become simplified because BRUTUS answers three very important questions for us:

  1. When exactly should I enter an event trade?
  2. What kind of IV surge might I expect with the event trade?
  3. When exactly should I exit an event trade?

These three questions are common for all traders and BRUTUS has the answer.

Now that you have a general understanding of IV basics, you can find success with Operation Surge Strike.

Learn more about Operation Surge Strike by clicking below:

Once BRUTUS identifies the event opportunity and I’ve reviewed it, I simply send my Operation Surge Strike members trade alerts. All they have to do is follow the alert instructions – Life Simplified.

Don’t get Crushed!

It’s time to be on the winning side of Implied Volatility!

See you soon,

Tom Gentile
America’s #1 Pattern Trader

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