Buying Options before Earnings

Quote from garage sale:

So how would the pro play in this situation?

I'm bullish on GLNG and have reasons to believe that it will go up 10+% in the few days or weeks after earnings which is on the 30th. This could go to $40 based on my analysis, but if they miss earnings they could go down 10%. I want to limit my losses so the best bet is to buy calls here, instead o selling puts. Here are the 3 options;

1. Long 35 June calls for $1.55.
2. Long 40 June calls for $0.25.
3. Long 35 June call for $1.55 and sell 40 June calls for $0.25 for net $1.3.
4. Pass the trade because all those options are expensive based on xyz.

I'm leaning towards #3.
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Option 1. Clearly. The markets think it will move 7percent. You think 10percent and up.

This should be obvious.
 
Quote from newwurldmn:

Option 1. Clearly. The markets think it will move 7percent. You think 10percent and up.

This should be obvious.
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Another newbie question.
What are you looking at to tell what the market thinks?
 
Quote from garage sale:

That's exactly my fear, but is there a way to play that though.
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It's all about the volatility.

There are checks and balances everywhere.

Lots of techniques and methods, which basically just allow you to adjust the probability with the potential gain/loss. But no magic.

Essentially, there are only two ways:

1.
You have to know more than the market does about the earnings, AND how the market will react to those earnings

2.
You find abberations in the options prices and take advantage of them.
 
Quote from noregrets:

The options market is very efficient at pricing in the expected move from earnings into option premiums; there is no "easy money" to be had.
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Agree to the second part, not necessarily the first one. There are a LOT of examples where the implied move is completely wrong, cycle after cycle.

As an example, NFLX options underpriced the implied move cycle after cycle, and buying a straddle a day before earnings would be profitable most of the time.

That said, this is HIGHLY speculative strategy. If you are wrong, the IV collapse will kill you.

I have been implementing a strategy of buying straddles 5-10 days before earnings and selling just before earnings. Had few articles on Seeking Alpha about this strategy:

http://seekingalpha.com/article/310...loiting-earnings-associated-rising-volatility
http://seekingalpha.com/article/427111-how-to-rent-your-options-for-free
http://seekingalpha.com/article/350061-how-i-made-20-in-2-days-on-a-stagnant-stock
 
Just keep thinking and guessing where market can turn. If you are good at guessing the market then there would be the less chances of risk.
 
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