The most powerful force is an “invisible” one; because you can always prepare for the visible forces but the one that can cause most gain or pain is the one that you can’t see. Implied volatility is one such force when trading financial markets. I introduced Ms Vega as personification for Implied Volatility. Depending upon which side are you at, Ms Vega can either bring lot of money to your portfolio or can easily make you cry. Those who don’t know about implied volatility, pls click here to know more about it.
It is a commonly known fact amongst options traders that before earnings announcement, implied volatility of underlying increases. Let’s stay with the simple facts-
- Implied Volatility rises before earning.
- For the stocks that tends to move a lot (how to play) usually there is Implied Volatility skew between the earning month and the month before/after.
Insiders/Outsiders who might have “earnings date” can make a lot of money. All one need to know a) the earning date with certainty and/or b) changes in the earnings date before those are announced to the public and bingo!!! Let me explain this more with the following two examples-
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