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

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More About This Book

Overview

“Trading on Corporate Earnings News is one of those rare, high-quality pieces of work that is destined to become an instant source of value creation for serious investors. Its greatest strength lies in linking actual statistics to market behavior and fundamental analysis. Serious investors who study the material will undoubtedly discover its value as a springboard for further analysis. That said, nobody interested in structuring option trades around corporate events such as earnings should be without this book. John Shon and Ping Zhou must be commended for creating a study of this caliber.”

–Jeff Augen, author, Trading Options at Expiration and Day Trading Options

“John Shon and Ping Zhou have transformed two dry subjects–earnings announcements and options trading–into a dynamic, interesting, well documented, and highly readable book. Anyone wanting to improve their trade timing will need to read this book. It is an excellent addition to the options trading literature.”

–Michael C. Thomsett, author, Options Trading for the Conservative Investor

“John Shon and Ping Zhou have written the ultimate recipe book for trading earnings news with options. They cover the theory and evidence of earnings announcements and market reactions, and describe in great detail the implementation of option trading strategies that exploit these findings. Trading on Corporate Earnings News demonstrates that rigorous statistical, economic, and financial analysis can lead to profitable investments. I recommend this book as an excellent reference for all investors interested in improving their option trading skills using earnings news and for all readers curious about the fascinating field of accounting and finance.”

–Minh Trinh, CFA, PhD, Managing Principal, Referee Advisors LLC

“John Shon and Ping Zhou have created a masterpiece based on clear and penetrating observations on stock price volatility. Their discovery that options-based trading around earnings announcements yields better returns, backed by their research and undeniable evidence, is groundbreaking. Written in simple and plain language, it is appropriate for the pro and novice alike. If you trade–or want to know how to trade options–you need to buy this book.”

–John Reilly, Managing Partner, Alliance Capital Partners

Trading on Corporate Earnings News shows how to earn large, quick profits by taking targeted, short-term options positions timed explicitly to exploit companies’ quarterly earnings announcements.

The authors begin by presenting new findings from cutting-edge studies on market reactions to quarterly earnings news and surprises. Drawing on enormous data sets, they identify the types of earnings announcement trades that are most likely to yield profits, based on the predictable impact of several key variables. Next, they provide real examples of individual stocks–and, in some cases, conduct large sample tests–to help investors profit from these regularities. Finally, they show how to manage crucial nuances and pitfalls that can powerfully impact performance.

Designed for every investor or trader, Trading on Corporate Earnings News brings together everything you need: strong underlying theory, rigorous empirical research, actionable strategies, and real-world, plain-English execution techniques.

Equity and options behavior around earnings announcements

How stocks and options really move before and after earnings news

Surprising reactions to earnings surprises

Why markets often don’t react the way you expect–and what to do about it

Improving your odds on every trade

Practical issues, proven theories, and unexpected empirical regularities

Beyond options: powerful ideas for stock-based investing

Gain deep market insights that you can apply in every investment

Product Details

  • ISBN-13: 9780137084920
  • Publisher: FT Press
  • Publication date: 3/23/2011
  • Pages: 224
  • Sales rank: 428,962
  • Product dimensions: 5.40 (w) x 8.10 (h) x 0.90 (d)

Meet the Author

John Shon is Professor of Accounting at Fordham University’s Gabelli School of Business and Graduate School of Business Administration. He has received several teaching awards throughout his teaching career. Shon publishes extensively in academic journals and has received several grants and awards for his research on equity markets. He holds a Ph.D. in Accounting and an MBA in Finance from the University of Chicago’s Booth School of Business.

Ping Zhou, Portfolio Manager and Senior Vice President of the Quantitative Investment Group at Neuberger Berman, currently manages U.S. and global equity funds for institutional investors. Zhou’s expertise is in portfolio theory, market anomalies, investor behavior, corporate finance, and risk management. He previously served as Accounting Professor at City University of New York—Baruch College. He holds a Ph.D. in Accounting from Georgia State University.

Table of Contents

Acknowledgments xii

About the Authors xiii

Preface xiv

PART I: INTRODUCTION

Chapter 1: Introduction 3

PART II: THEORY: EARNINGS ANNOUNCEMENTS AND EARNINGS SURPRISES

Chapter 2: Earnings Announcements: Why Are They So Important? 13

Chapter 3: Earnings Surprises: Definition and Measurement 23

Chapter 4: Earnings Surprises: Empirical Evidence 39

PART III: EVIDENCE: MARKET REACTIONS

Chapter 5: Market Reactions to Earnings Announcements 49

Chapter 6: Market Reactions to Earnings Surprises (Are Full of Surprises) 57

PART IV: IMPLEMENTATION: OPTIONS TRADING STRATEGIES

Chapter 7: General Characteristics of Optioned Companies and Options Behavior Around Earnings Announcements 71

Chapter 8: Practical Considerations Before Implementing Trades 77

Chapter 9: Directional Bets: Long Calls, Bull Call Spreads, Long Puts, and Bear Put Spreads 97

Chapter 10: Long Straddle and Strangle Strategies 111

Chapter 11: Short Straddle and Strangle Strategies 135

PART V: FINE TUNING: IMPROVING THE ODDS OF A PROFITABLE TRADE

Chapter 12: Growth Expectations and the Torpedo Effect 153

Chapter 13: Revenue and Expense Surprises 161

Chapter 14: Earnings Surprise Persistence 167

Chapter 15: Other Theories and Evidence 175

References 189

Index 197

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