Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions

Chapter 1. Introduction

A recent study by Roll, Schwartz, and Subrahmanyam (2009) found that options trading around earnings announcements has been steadily increasing every year from 1996 to 2007. So, you’re in good company. This is one of the main reasons we decided to write this book. The other reason is the trading experience of a dear friend of ours—let’s call him Bob.

The Stock-Based Trade

Let us tell you about our friend, Bob, who lost a lot of money on a trading position. Near market close on September 24, 2009, Bob decided to buy shares of Research in Motion (NASDAQ: RIMM). Following Warren Buffett’s philosophy, he liked the story behind Research in Motion, a Canadian high-tech company that practically cornered the market in push technology ...