tailieunhanh - How I Trade Options_3

Tham khảo tài liệu 'how i trade options_3', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | tile marketplace 39 earnings announcement due the next day or a new product is being announced a litigation settlement a major trade show whatever the event there may be an opportunity to position myself in a stock in front of an expected announcement. If I expect the announcement to be positive I ll be a buyer. If I m expecting negative news I can be a seller. I can use this and other means to push the odds into my favor. Here s an example of what we do all the time when a company is about to announce earnings Hewlett Packard is notorious for being extremely volatile around its earnings. The more Wall Street can predict a company s earnings the less volatile the stock is likely to be since volatility is a measure of market uncertainty. In Hewlett Packard s case its earnings tend to be volatile because it is really a combination of companies involved in printers computers and Internet routers. Hewlett Packard s earnings may miss earnings expectations by 20 percent on any given earnings cycle. Because of that the stock is very volatile ahead of those earnings. Typically I m the seller of that volatility. In other words I m taking on the risk that Hewlett Packard will not move as much as expectations in the market. This is best illustrated with a bell curve as shown in Figure . Let s say Hewlett Packard is trading at 100 a share. Under normal circumstances the weekly range is between 92 and 108 . That s normal volatility of around 60 percent. But around earnings that volatility may increase to around 85 percent or 90 percent with a price range extending between 88 and 112 Figure . As a reference point utilities tend to have very stable stock prices and a low volatility value some as low as 20 percent. Internet stocks that are very volatile perhaps reaching 120 percent indicate we could see wide swings in share prices. On the food chain of volatility the lowest are the utilities then the multinational companies then the computer companies and then higher risk .