tactics essential trading strategies
BASIC
News-Driven Trading
Basing trades on public announcements and earnings reports can generate profits without a major investment of time
By Michael Gough
PHOTOGRAPH: REUTERS/BRENDAN MCDERMID
I
nvestors always have something to trade, thanks to a six-and-a-halfhour equity trading day, extended hours for futures and weekend crypto markets. But not everybody has time to trade. It’s impossible to stay glued to the screen because other areas of life demand attention, and staying awake through the night hardly seems feasible. So, given a limited schedule, is there a more effective way to trade? For busy investors, news-based trading provides a way to stay engaged with the markets. It’s exactly what it sounds like—buying and selling around a particular public event. Each month, dozens of market-moving announcements, such as Non-Farm Payroll reports, World Agricultural Supply and Demand Estimates, and Federal Reserve policy meetings, are released to the public. All of them present scalping opportunity. Besides those announcements, the hundreds of earnings reports released quarterly provide a nearly endless stream of short-term trading opportunities. Consider earnings announcements. Each quarter, before a company releases its financial information, dozens of analysts make an educated guess on how the company
performed. The difference between what they expect and what actually occurs can shake the stock price or not move it at all. It’s these guesses and expectations of movement that provide a great short-term opportunity for the savvy options trader. Using options markets, traders can gauge how much market participants are expecting the underlying to move after the earnings release. This number is reflected in the implied
volatility of the options expiring closest to the earnings date. Selling options around those price levels can be a profitable one-day trade if the stock moves less than expected. Consider the example of a recent Apple (AAPL) earnings report. An earnings calendar shows Apple was releasing earnings on Wednesday, Oct. 30, after the market close. Using the implied volatility of the options expiring closest to the earn-
Pro traders anticipate events that may result in market-shifting news.
december 2019 | luckbox
12:39 PM
1912-tactics-basic.indd 59
59
11/14/19 4:48 PM
