Who trades options profit
It might be hard to predict how a stock reacts to earnings, but investors can look to the options market for clues to what Wall Street expects. It can also help identify opportunities for short-term trading gains.
Options prices are determined by a few things, with volatility being one of the biggest factors. The more a stock fluctuates, the higher the odds an options contract will be worth something.
If a stock price never changed, the value of an option—the right to buy or sell that stock at a different price in the future—would be zero.
Who trades options profit volatility embedded in options prices holds a wealth of information.
Importantly, it can signal how violently a stock will react when earnings are reported. In the strategy, traders buy a call option—the right to buy a stock—and a put option—the right to sell a stock—at the same price and at the same time in the future.
Measuring the cost of a straddle tells investors, very roughly, what to expect after earnings.
The options market got it right. Qualcomm makes and sells product in Asia, while Royal is a travel stock.
It can help take the edge off wild markets like this one. Write to Al Root at allen.