Binary Options on Equity Earnings
Every company announces financial results to the market 4 times a year. The company is required to disclose publicly in advance when it plans to announce these official results, and you can find this information in many places. YahooFinance has this information for each company and for the market as a whole. Many other financial sites have this information as well, such as earnings.com, finviz.com, and briefings.com. In addition to the regularly scheduled results, companies typically issue guidance as to future expected performance, and they can update guidance whenever they feel conditions have changed. For example, retail companies announce sales numbers monthly. When we talk about trading earnings, we mean trading the stock either immediately before or immediately after the official earnings announcement. Earnings can cause significant volatility in the stock because shareholders want to own companies that are more successful than expected, and a company that misses expectations will likely see it’s shares fall significantly. Because of this volatility, companies typically announce earnings outside of market hours; that is, before the market opens or after the market closes. In addition, most companies do a conference call to discuss results. Both the headline numbers and the conference call have the ability to move the stock significantly.
The first thing to do is to cross-reference the list of available equity assets with the earnings database and keep a list of expected earnings announcement dates. If you use [bbinary], just click on Stocks to see a list of available stocks that you can trade binary options on. For optimarkets, same thing, just click on stocks. I like to use optimarkets because I trade mostly US names, and optimarkets has a bigger selection of US stocks. You want to trade stocks you know for earnings plays. For example, Apple is a very liquid stock and one I trade regularly. If your broker offers binary options on Apple, you can go to YahooFinance and type in AAPL as the ticker symbol. You will see the next expected earnings report for AAPL.
Binary options can be a great tool to trade earnings because they allow you to capture the momentum of the stock on a short-term basis. Binary options on equities are typically only available during market hours, and earnings announcements are always outside of market hours, so you will not be able to trade the immediate reaction to the news. However, you can trade the movement once the market opens. Typically the biggest move comes right on the announcement, but this is why binary options are a great tool. Remember, with binary options, you just need to get the direction, right, you don’t have to worry about how much the asset moves. You don’t need to capture the big move to make big money, you just need to pick the right direction for the stock to move once the market opens. You know your risk and your payout before you get into the trade.
In general when you are trading earnings, you want a big move in the stock right as the news is announced. This means it will be huge news and market participants will be rushing in to buy moves higher or sell moves lower once the market opens. So, the strategy is very simple. If the stock was up significantly (5-10%) on the news, buy binary calls right at the open. If the stock was down significantly, buy binary puts. You want the option to expire as soon as possible, because you just want to capture that immediate momentum of the announcement. Expiration times will depend on your broker.
When you are trading earnings, you always want to be aware of the conference call time and if possible, listen to it while you are trading. This should not be too difficult, because most binary options brokers only offer options on the most liquid US equities. There are not too many situations where you will have multiple calls going on at once. Some conference calls will take place outside of market hours, so you will have time to listen or just watch the price action in the after-market and pre-market. If the call is during market hours, you want to avoid buying binary puts that expire during or after the end of the earnings call. The reason is that rarely does management do a terrible job of discussing earnings. The call is their opportunity to explain bad results, cheerlead good results, and in general promote the company and the stock. This usually has a positive impact on the stock price, so you want to use caution if you are long binary puts.
With practice, you will be able to profit significantly from earnings announcements using binary options. I hope you are able to add this to your binary options trading strategy.