The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone, this is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to answer the question, “Why do long option strategies fail to profit after a stock’s earnings are released?” A common misconception, totally common misconception in the marketplace is that when a stock announces earnings, you get this huge move in the underlying stock and therefore, you can profit potentially from that huge move. But the problem is that as you're approaching that unexpected event, that earnings event, the market prices in the expectation of a huge move. It naturally happens. And so, what we see is we see actually heading into those events, sometimes a week or two weeks or a month out, implied volatility will start to rise heading into that earnings event because we don't know if the stock is going to announce great earnings, if they’re going to announce bad earnings, if their revenue fell or grew, whatever the case is, right? And so, traders are expecting a big move to begin with.