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Caution – Earnings!

With earnings season upon us, there is an extra step needed when placing a trade. Consult an earnings calendar like the Yahoo Earnings Calendar:

Traders will look at the high implied volatility of certain stocks and think that the excess premium is ripe for the taking. But with efficient markets there is usually a reason for the low hanging fruit. At this time of the year a spike in implied volatility is generally an indication of an earnings announcement.

You may choose to trade, or not to trade the announcement, that is up to you. What every trader needs to do is know that there is an announcement coming up prior to the expiry of the option.

When placing trades around this time of year, make sure you know when the company you are trading is releasing earnings. If the high implied volatility looks too good to be true, it probably is.