Options Prices after Earnings

OTM-Options said:
You never know what will happen after earnings. Stocks can go down on good earning reports or climb on poor earning reports - 20/20 hindsight analyst then kicks in and it all makes sense - until the next time.





Options are much more expensive pre-earnings due to the uncertainty of what will happen after earnings, once earnings is past that risk is gone so the options can be priced cheaper, so if the stock doesn't move enough after earnings the options will go down in value. A 3% move on a stock like TSLA isn't enough, some stocks need a 10% move for the options to pay off.



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In doing trades like this you should always know the "market maker expected move" for the life of that option. In this case for TSLA, expiration was one day after the May 7 earnings trades, and the expected move was $17.36. This means that they have priced into the pre-earnings option prices a move up or down of $17. You did not have a chance to make any money unless it had that large a move on the day after the earnings announcement. Think of it this way, the MM people are smart and they are putting their money on the line. They are not about to allow you to profit from such a simple idea.

Now can it be profitable? On occasion yes. Linked-In is a good example as it had an expected move of $20 and it opened $40 down. However, just like in gambling, the casino always has the edge in whatever game you want to play. Likewise in trying to win money on earnings trades. You are going to be a consistent loser trying to do what you tried here.
 
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