Chapter 15. Other Theories and Evidence

A number of other theories and findings can guide your options trading. Some of these theories will help you directly with particular trading ideas, and others will simply help you better understand the environment in which you’re placing your trades. All the studies’ findings are backed by empirical evidence from hundreds of thousands of data points. This chapter summarizes some of these findings.

Richness of the Information Set

The market’s reaction to an earnings surprise depends on how much the market is anticipating a company’s earnings news. The richer and more complete a company’s information environment, the smaller the market’s reaction to the company’s earnings surprise. Conversely, the more incomplete, ...

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