Why Investors Should Trade Options around Earnings Announcement
John Shon, Ph.D. and Ping Zhou, Ph.D.
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. It’s one of the main reason we decided to write about this topic. 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 the market close on September 24th, 2009, Bob decided to buy shares of Research in Motion (NASDAQ: RIMM). Following Warren Buffet’s philosophy, he liked the story behind Research in ...
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