Trading During Events

A

Ank_22

What's been your experience trading before/at the time of/after event announcements where you felt like this might have a decent impact on the market?

Which out of the three would you prefer to go for?

Would you prefer not at all to trade during these times? If so, why?

In the scenario where you have a decent idea of a bear or bull movement, how many of these times were you correct but experienced loss due to iv crush?
 
Depends. When I was a bank trader, we tried to isolate the risk we held in positions, so that we were only exposed to things we wanted to be.

However, there are times when you can profit off a move. A good example is NFP or other report, where the initial reaction is very noisy, and you can profit if you understand the event and how it ties into equity risk premia or whatever asset you're trading. Another good example is earnings in peer companies -- where cash flow information can impact your positions.

Tl;dr
Only carry risk you want to take. Sometimes that means event risk, as long as you have a view or spot an opportunity in the impact of the event.
 
Ank_22 said:
What's been your experience trading before/at the time of/after event announcements where you felt like this might have a decent impact on the market?

Which out of the three would you prefer to go for?

Would you prefer not at all to trade during these times? If so, why?
More...

I prefer to stay out all three of them. Way too much volatility, and totally not worth it. For all the money that you could earn from the event should you happened to be on the correct side, I can earn them no problem during the regular time trading. If I happened to be on the wrong side, it's gonna take me a LONG time to earn back the losses when I could've been much further ahead and that's just from ONE trade. The cost/benefit ratio is just too high.
 
longandshort said:
Depends. When I was a bank trader, we tried to isolate the risk we held in positions, so that we were only exposed to things we wanted to be.

However, there are times when you can profit off a move. A good example is NFP or other report, where the initial reaction is very noisy, and you can profit if you understand the event and how it ties into equity risk premia or whatever asset you're trading. Another good example is earnings in peer companies -- where cash flow information can impact your positions.

Tl;dr
Only carry risk you want to take. Sometimes that means event risk, as long as you have a view or spot an opportunity in the impact of the event.
More...

NFP is the worst!! There is no way you can predict the market's reaction. I've seen the market tank on a perfectly good number because it was already priced in and the market rise on a really bad number just because it wasn't as bad as everybody thought. So many times, the market moved ahead of time because the number somehow got known... You can understand the event but you can never understand how the market is going to "think" until after the fact and by that time, you've already incurred losses.
 
Sometimes I sell very far out the money options, like 5 delta, but very rarely, usually I wait for some earnings which rise volatility for everyone else, like last ZM 40% move on earnings raised other bubble (sorry, I mean growth) stocks so much that 10-5 delta calls, which strike was 30% out of the money with expected move about 10% were worth insane money, because "well ZM moved up, so our bubble stonk will jump too". I made good money. But I lost a some too, because if you sell 5 delta, you can not buy protective wings, because no credit will be left for you.
 
JSOP said:
NFP is the worst!! There is no way you can predict the market's reaction. I've seen the market tank on a perfectly good number because it was already priced in and the market rise on a really bad number just because it wasn't as bad as everybody thought. So many times, the market moved ahead of time because the number somehow got known... You can understand the event but you can never understand how the market is going to "think" until after the fact and by that time, you've already incurred losses.
More...

You can, just need to be smart about it.

Think about these items:
  • there may be seasonality (some months might show higher numbers than others because of some unrelated item, e.g. tax payments or when new visas get issued, etc.)
  • distribution should be normal, so moves beyond 1-2std should be reviewed (when has it happened in the past and how did the market react? what was the backdrop?)
  • understanding how NFP impacts the demand for local currency
  • Understanding how NFP impacts policy makers (fiscal and monetary -- remember that central banks typically have a mandate to reduce unemployment)
  • understand where the currency and rates are trading relative to peers
  • typically trust the move in rates more than the move in fx
Then, look at some forward looking data to get a feel as to what's going on:
  • Rolling 4wk unemployment insurance claims
  • Comments on employment in PMI (mfg & svcs)
  • etc.
Then, have a view on what's driving the trend in NFP
  • EXAMPLE: "as lockdowns continue to roll through the economy, I expect NFP will be very volatile, with falling NFP post-lockdown announcements and bottoming out around the time employers think policy makers will lift restrictions"
  • "therefore, an NFP print that is very high, given the backdrop, is likely to be noisy and contain artifacts -- watch the move in rates but generally fade an NFP rally"
 
longandshort said:
You can, just need to be smart about it.

Think about these items:
  • there may be seasonality (some months might show higher numbers than others because of some unrelated item, e.g. tax payments or when new visas get issued, etc.)
  • distribution should be normal, so moves beyond 1-2std should be reviewed (when has it happened in the past and how did the market react? what was the backdrop?)
  • understanding how NFP impacts the demand for local currency
  • Understanding how NFP impacts policy makers (fiscal and monetary -- remember that central banks typically have a mandate to reduce unemployment)
  • understand where the currency and rates are trading relative to peers
  • typically trust the move in rates more than the move in fx
Then, look at some forward looking data to get a feel as to what's going on:
  • Rolling 4wk unemployment insurance claims
  • Comments on employment in PMI (mfg & svcs)
  • etc.
Then, have a view on what's driving the trend in NFP
  • EXAMPLE: "as lockdowns continue to roll through the economy, I expect NFP will be very volatile, with falling NFP post-lockdown announcements and bottoming out around the time employers think policy makers will lift restrictions"
  • "therefore, an NFP print that is very high, given the backdrop, is likely to be noisy and contain artifacts -- watch the move in rates but generally fade an NFP rally"
More...

Wow wonderful insights! You seem like an experienced discretionary trader (something I can't do for nuts). I'm a systematic trader and will probably try to integrate all the factors above and commit Occam razor.
 
As an example of events trading I have in the past traded off company results announcements, both as day-trades and swing trades. In both cases I waited for the market to show its reaction however. These were always long positions and I was looking for either a continuation of an uptrend or well publicised rumours of good results expected, or both. The short-term trades were for exit about midday, the long-term trades had a stop-loss based on the low of the day preceding the results date.
 
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