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Earnings Announcements

Trading Term

Earnings announcements are quarterly releases by publicly traded North American companies that contain important statistics like revenue, margin data, and future profitability projections. These announcements can significantly impact stock prices and options pricing through changes in implied volatilities.

As earnings dates approach, options traders typically observe:

  • Rising implied volatilities
  • Steepening skew between at-money and out-of-the-money options
  • Option pricing influenced by historical post-earnings stock movements

Earnings risk is generally stock-specific and difficult to hedge against indices or similar companies. Various options trading strategies can be employed around earnings, including:

  • Buying straddles or out-of-money puts when expecting big moves
  • Using calendar spreads to capitalize on high front-month volatility
  • Implementing vertical spreads when skew becomes extremely steep

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